Rogers Communications Inc. (RCI) declared weak financial results for the first quarter of 2012. Quarterly net income was $356 million or 67 cents per share compared with a net income of $423 million or 76 cents per share in the year-ago quarter. Quarterly total revenue was $2,954 million, down 1% year over year, missing the Zacks Consensus Estimate of $3,051 million.

First-quarter adjusted operating profit was $1,091 million, down 6% year over year. Quarterly adjusted operating margin was 36.9% compared with 38.8% in the year-ago quarter. During the first quarter of 2012, Rogers Communications generated $528 million of cash from operations compared with $943 million in the year-ago quarter. Free cash flow during the reported quarter was $79 million compared with $323 million in the year-ago quarter.

At the end of the first quarter of 2012, Rogers Communications had $1,165 million of cash and marketable securities on its balance sheet compared with $1,107 million at the end of 2011. Total outstanding debt, at the end of the reported quarter, was $10,194 million compared with $9,833 million at the end of 2011. At the end of the first quarter of 2012, debt-to-capitalization ratio was 0.73 compared with 0.74 at the end of 2011.

Wireless Segment

Quarterly total revenue was $1,706 million, down 1% year over year. Network revenue was $1,612 million, remaining same year over year. Equipment sales were $94 million, down 11% year over year. Quarterly adjusted operating profit for the entire segment was $737 million, down 7% year over year. Adjusted operating margin was 43.2% in the reported quarter compared with 45.9% in the year-ago quarter. In the first quarter of 2012, wireless Data revenue was $627 million, up 16% year over year. Wireless Data revenue represented around 39% of total wireless network revenue compared with 34% in the prior-year quarter.

During the first quarter of 2012, wireless segment activated 642,000 smartphones, up 20.2% year over year. This is the second highest number of smartphone activations in any quarter in Rogers’ history. Most of these smartphones are either iPhone of Apple Inc. (AAPL), BlackBerry of Research In Motion Ltd. (RIMM) or Google Inc. (GOOG) developed Andriod-based handsets. Out of the total, around 34% were new smartphone subscribers. Quarterly consolidated ARPU (average revenue per user) was $57.65, down 2.3% year over year.

On March 31, 2012, Postpaid retail subscribers’ base was around 7.621 million, up 3.4% year over year. Smartphone customers now constitute 60% of overall Postpaid subscribers compared with 45% in the year-ago quarter. Quarterly Postpaid ARPU was $67.39, down 2.8% year over year. Monthly churn rate was 1.26% compared with 1.23% in the prior-year quarter. Prepaid subscribers’ base was around 1.689 million, up 2.9% year over year. Quarterly Prepaid ARPU was $14.99, up 4.7% year over year. Monthly churn rate was 4.31% compared with 3.85% in the prior-year quarter.

Cable Segment

Quarterly total revenue was $923 million, down 3% year over year. Basic cable operations revenue was $825 million, up 1% year over year. RBS revenue was $87 million, down 25% year over year. Video revenue was $11 million, down 54% year over year. Quarterly adjusted operating profit for the whole segment was $393 million, down 2% year over year. Adjusted operating margin was 42.6% in the reported quarter compared with 49.3% in the year-ago quarter.

On March 31, 2012, Cable TV subscribers’ base was around 2.276 million, down 1.2% year over year. High-speed Internet subscribers’ base was 1.806 million, up 6.4% year over year. Digital cable terminal base was 1.776 million, up 1.9% year over year. Cable Telephony lines were 1.053 million, up 3.9% year over year.

Media Segment

Quarterly total revenue was $354 million, up 4% year over year. Quarterly adjusted operating loss was $14 million, up 40% year over year. Adjusted operating margin was a negative 4% in the reported quarter compared with a negative 2.9% in the year-ago quarter.

Future Financial Outlook

Rogers Communications has provided its fiscal 2012 outlook, in which adjusted operating income is expected to be in the range of $4,730 million – $4,915 million. Pre-tax free cash flow will be $1,950 million – $2,050 million. Wireless network revenue will be $6,650 million-$6,820 million. Wireless adjusted operating profit will be $3,025 million-$3,175 million. Cable revenue will be $3,385 million-$3,460 million. Cable adjusted operating profit will be $1,550 million-$1,600 million. Media revenue will be $1,690 million-$1,750 million. Media adjusted operating profit will be $190 million-$215 million.

Our Recommendation

We maintain our long-term Neutral recommendation on Rogers Communications. Currently, the company has a short-term Zacks #4 Rank (Sell).

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