Rogers Communications Inc. (RCI) declared strong financial results for the first quarter of 2011 buoyed by massive postpaid wireless subscribers’ growth. Quarterly net income was $342 million or 61 cents per share compared with a net income of $376 million or 63 cents per share in the year-ago quarter. However, the first quarter adjusted EPS was 75 cents, well above the Zacks Consensus Estimate of 72 cents. Quarterly total revenue was $3,054 million, up 4% year over year, surpassing the Zacks Consensus Estimate of $3,022 million.
Quarterly gross margin was 38.6% compared with 38.9 in the year-ago quarter. However, first quarter operating profit was $755 million, up 1.8% year over year. Quarterly operating margin was 24.2% compared with 24.7% in the year-ago quarter.
During the first quarter of 2011, Rogers Communications generated $755 million of cash from operations compared with $862 million in the year-ago quarter. Free cash flow during the reported quarter was $352 million compared with $489 million during the year-ago quarter.
At the end of the first quarter of 2011, Rogers had $2,403 million of cash and marketable securities on its balance sheet compared with $2,201 million at the end of fiscal 2010. Total outstanding debt, at the end of the reported quarter, was $9,943 million compared with $8,718 million at the end of fiscal 2009. At the end of the first quarter 2011, debt-to-capitalization ratio was 0.72 compared with 0.69 at the end of fiscal 2010.
Wireless Segment
Quarterly total revenue was $1,759 million, up 4% year over year. Postpaid revenue was $1,578 million, up 3% year over year and Prepaid revenue was $73 million, up 8% year over year. Equipment sales were $109 million, up 15% year over year.
Quarterly adjusted operating profit for the entire segment was $808 million, down 5% year over year. Adjusted operating margin was 48.9% in the reported quarter compared with 52.8% in the year-ago quarter. In the first quarter of 2011, wireless Data revenue was $554 million, up 30% year over year. Wireless Data revenue represented around 34% of total wireless network revenue compared with 26% in the prior-year quarter.
During the first quarter of 2011, wireless segment activated 534,000 smartphones, up 53.5% year over year. 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 36% were new smartphone subscribers, which is a historic high figure. Quarterly consolidated ARPU (average revenue per user) was $61.3, down 2.7% year over year.
On March 31, 2011, Postpaid retail subscribers’ base was around 7.370 million, up 4.9% year over year. Smartphone customers now constituted 45% of overall Postpaid subscribers compared with 33% in the year-ago quarter. Quarterly Postpaid ARPU was $71.8, down 2% year over year. Monthly churn rate was 1.23% compared with 1.10% in the prior-year quarter.
Prepaid subscribers’ base was around 1.642 million, up 9.8% year over year. Quarterly Prepaid ARPU was $14.6, down 2.7% year over year. Monthly churn rate was 3.85% compared with 3.59% in the prior-year quarter.
Cable Segment
Quarterly total revenue was $974 million, up 1% year over year. Basic cable operations revenue was $831 million, up 3% year over year. RBS revenue was $118.5 million, up 5% year over year. Video revenue was $24.5 million, down 41% year over year. Quarterly adjusted operating profit for the whole segment was $401 million, up 16% year over year. Adjusted operating margin was 41.1% in the reported quarter compared with 35.8% in the year-ago quarter.
On March 31, 2011, Cable TV subscribers’ base was around 2.303 million, up 0.3% year over year. Internet subscribers’ base was 1.698 million, up 3.8% year over year. Digital cable terminal base was 1.743 million, up 3.2% year over year. Cable Telephony lines were 1,014 million, up 5.7% year over year.
Media Segment
Quarterly total revenue was $347 million, up 17% year over year. Quarterly adjusted operating loss was $15.3 million compared with operating profit of $1.1 million in the year-ago quarter. Adjusted operating margin was negative 2.9% in the reported quarter compared with 1.7% in the year-ago quarter.
Future Financial Outlook
Rogers Communications has provided guidance that its fiscal 2011 adjusted operating will be C$4,600 million – C$4,765 million. After-tax free cash flow will be C$1,850 million – C$1,975 million. Wireless network revenue will be C$6,525 million-C$6,725 million. Wireless adjusted profit will be C$3,050 million-C$3,200 million. Cable revenue will be C$3,250 million-C$3,325 million. Cable adjusted profit will be C$1,450 million-C$1,500 million. Media revenue will be C$1,625 million-C$1,710 million. Media adjusted profit will be C$160 million-C$180 million.
Our Recommendation
We maintain our long-term Neutral recommendation on Rogers Communications. Currently, it holds a short-term Zacks #3 Rank (Hold) on the stock.
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