Rogers Communications Misses in 1Q

Rogers Communications Inc. ( RCI - Analyst Report ) 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 - Analyst Report ) , BlackBerry of Research In Motion Ltd. ( ) or Google Inc. ( GOOG - Analyst Report ) 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).