Rogers Communications Misses in 2Q

Rogers Communications Inc. (RCI - Analyst Report) declared weak financial results for the second quarter of 2012, missing the Zacks Consensus Estimates. Quarterly net income was $409 million or 76 cents per share compared with a net income of $410 million or 75 cents per share in the year-ago quarter. However, second-quarter, adjusted (excluding special items) earnings per share of 82 cents fell below the Zacks Consensus Estimate of 85 cents. Quarterly total revenue was $3,075 million, up 0.3% year over year, but missed the Zacks Consensus Estimate of $3,148 million.

Second quarter adjusted operating profit was $1,263.4 million, up 3% year over year. Quarterly adjusted operating margin was 41.1% compared with 40.2% in the year-ago quarter. In the reported quarter, the company repurchased 9.6 million of its Class-B non-voting shares for a total consideration of $350 million and paid dividend totaling $207 million.

During the second quarter of 2012, Rogers Communications generated $1,068.3 million of cash from operations compared with $911 million in the year-ago quarter. Free cash flow during the reported quarter was $615 million compared with $400 million in the year-ago quarter.

At the end of the second quarter of 2012, Rogers Communications had $1,639 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 $10,778 million compared with $9,833 million at the end of 2011. At the end of the second quarter of 2012, debt-to-capitalization ratio was 0.75 compared with 0.74 at the end of 2011.

Wireless Segment

Quarterly total revenue was $1,748 million, up 0.3% year over year. Network revenue was $1,636 million, up 1% year over year. Equipment sales were $112 million, down 7% year over year. Quarterly adjusted operating profit for the segment was $788 million, up 5% year over year. Adjusted operating margin was 45.1% in the reported quarter compared with 43.3% in the year-ago quarter. In the second quarter of 2012, wireless Data revenue was $643 million, up 13% year over year. Wireless Data revenue represented around 39% of total wireless network revenue compared with 35% in the prior-year quarter.

During the second quarter of 2012, wireless segment activated 629,000 smartphones, up 6.4% year over year. Most of these smartphones are either iPhone of Apple Inc. (AAPL - Analyst Report), BlackBerry of Research In Motion Ltd. (RIMM) or Google Inc. (GOOG - Analyst Report) developed Andriod-based handsets. Of the total smartphones, around 36% were new subscribers. Quarterly consolidated ARPU (average revenue per user) was $58.52, down 1.9% year over year.

On June 30, 2012, Postpaid retail subscribers’ base was around 7.708 million, up 3.4% year over year. Smartphone customers now constitute 63% of overall Postpaid subscribers compared with 48% in the year-ago quarter. Quarterly Postpaid ARPU was $67.78, down 2.3% year over year. Monthly churn rate was 1.15% compared with 1.21% in the prior-year quarter. Prepaid subscribers’ base was around 1.643 million, down 1.6% year over year. Quarterly Prepaid ARPU was $15.75, down 1.4% year over year. Monthly churn rate was 4.04% compared with 3.82% in the prior-year quarter.

Cable Segment

Quarterly total revenue was $924 million, remaining same year over year. Basic cable operations revenue was $835 million, up 1% year over year. RBS revenue was $89 million, down 10% year over year. Quarterly adjusted operating profit for the whole segment was $421 million, up 2% year over year. Adjusted operating margin was 45.6% in the reported quarter compared with 44.9% in the year-ago quarter.

On June 30, 2012, Cable TV subscribers’ base was around 2.255 million, down 1.7% year over year. High-speed Internet subscribers’ base was 1.815 million, up 5% year over year. Digital cable terminal base was 1.777 million, up 1.8% year over year. Cable Telephony lines were 1.061 million, up 3.2% year over year.

Media Segment

Quarterly total revenue was $436 million, up 1% year over year. Quarterly adjusted operating profit was $72.3 million, down 11% year over year. Adjusted operating margin was 16.6% in the reported quarter compared with 18.8% in the year-ago quarter.

Our Recommendation

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