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Rogers Communication (RCI) Down 2.7% Since Last Earnings Report: Can It Rebound?

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It has been about a month since the last earnings report for Rogers Communication (RCI - Free Report) . Shares have lost about 2.7% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Rogers Communication due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Rogers Communications Misses on Q1 Earnings, Revenues

Rogers Communications reported first-quarter 2020 adjusted earnings of 53 cents per share that missed the Zacks Consensus Estimate by 8.6%.

Total revenues of $2.54 billion also missed the consensus mark by 1.7%.

Adjusted earnings decreased 9% year over year to C$0.71 per share. Total revenues decreased 4.8% year over year to C$3.4 billion due to decline in Wireless equipment revenues as a result of lower subscriber activity attributed to the coronavirus (COVID-19) outbreak.

Notably, first-quarter 2020 results were reported per IFRS 16.

Wireless Details

Wireless (60.8% of total revenues) decreased 1.2% from the year-ago quarter to C$2.49 billion.

On Jan 15, Rogers announced the rollout of Canada’s first 5G network in downtown Vancouver, Toronto, Ottawa and Montreal.

The company also became the exclusive Canadian member of the global 5G Future Forum, a 5G and mobile edge computing forum that includes Verizon, Vodafone, Telstra, KT and America Movil.

Service revenues decreased 2% to C$1.71 billion, attributable to decrease in prepaid subscriber base and blended average revenue per user (ARPU) as a result of overage revenues due to faster adoption of Rogers Infinite unlimited data plan launched last quarter.

Additionally, lower roaming revenues associated with lower overall roaming activity due to travel barriers and roaming services provided to customers at no cost starting Mar 16 affected services.

To combat COVID-19 pandemic, the company waived pay-per-use international roaming fees at all available destinations until Apr 30 and long-distance voice calling fees across Canada from mid-March until at least the end of June for its customers.

Equipment revenues were down 17.4% to C$365 million due to lower gross additions and device upgrades by existing customers as a result of the COVID-19 pandemic. However, this was offset by shift in product mix of device sales toward higher-value devices.

Monthly blended ARPU was C$52.9, down 2.4% year over year primarily a result of the declines in overage and roaming revenues. Meanwhile, monthly blended average billing per user (ABPU) was C$65.1, up 0.8% primarily as a result of an ongoing shift in the product mix of device sales toward higher-value devices.

As of Mar 31, 2020, prepaid subscriber base totaled almost 1.34 million, a loss of 234K subscribers from the year-ago quarter. Monthly churn rate was 4.98% compared with 4.69% in the year-ago quarter.

As of Mar 31, 2020, postpaid wireless subscriber base totaled roughly 9.43 million, up 252K from the year-ago quarter driven by strong adoption of Rogers Infinite plans by new customers. Monthly churn rate was 0.93% compared with 0.99% in the year-ago quarter.

Due to COVID-19 outbreak, postpaid subscriber growth was adversely impacted by closed retail locations and reduced promotional activity to protect employees and discourage customer trips to stores.

Segment operating expense decreased 10.5% from the year-ago quarter to C$1.05 billion.

Adjusted EBITDA increased 1.1% year over year to C$1.02 billion. Adjusted EBITDA margin expanded 300 basis points (bps) on a year-over-year basis to 49.4%.

Cable Details

Cable revenues (28.5% of total revenues) remained flat year over year at C$973 million. The stable revenues were due to bundled pricing constructs that provided home phone for a lower cost and movement of Internet customers to higher speed and usage tiers in Ignite Internet offerings. Service revenues were flat year over year.

As of Mar 31, 2020, Internet subscriber count was nearly 2.55 million, up 107K from the year-ago quarter.

During the quarter, the company temporarily removed data usage caps for customers on limited home Internet plans from mid-March until at least the end of June so that they remained informed and connected during quarantine.

Ignite TV subscriber count was nearly 417K in the Television segment, an increase of 328K from the year-ago quarter.

During the quarter, Rogers announced free services and customer support including free access to TV shows and movies, Canada-wide long distance, global roaming and more in response to the COVID-19 outbreak.

On Mar 6, Rogers announced the launch of Canada’s first 5G smartphones, the Samsung Galaxy S20 5G series for Rogers Infinite customers. The first phase of 5G network rollout continues in Vancouver, Toronto, Ottawa and Montreal using 2.5 GHz spectrum.

Equipment revenues remained flat year over year at C$2 million.

Segment operating expense decreased 2.1% from the year-ago quarter to C$520 million.

Adjusted EBITDA increased 1.8% year over year to C$453 million. Adjusted EBITDA margin expanded 100 bps on a year-over-year basis to 46.6%.

Media Details

Media (12.1% of total revenues) declined 12% from the year-ago quarter to C$412 million. The decline in revenues was primarily due to lower sports revenues, including at the Toronto Blue Jays, primarily as a result of the suspension of major sports leagues due to lockdown.

Segment operating expense decreased 10% year over year to C$497 million, primarily attributed to higher programming costs.

Adjusted EBITDA increased 1.2% year over year to negative C$85 million.

Consolidated Results

Operating costs decreased 7.6% to C$2.08 billion. As a percentage of revenues, operating costs contracted 190 bps to 60.9%.

Adjusted EBITDA remained flat year over year at C$1.33 billion. Adjusted EBITDA margin expanded 190 bps to 39.1%.

Other Details

During the quarter, Rogers announced a strategic partnership with Fleet Complete to bring Canada-based businesses critical next-generation fleet management technology.

Balance Sheet & Cash Flow Details

As of Mar 31, 2020, Rogers Communications had cash and cash equivalents of $1.93 billion compared with $494 million at the end of the previous quarter.

Cash provided by operating activities decreased 4% year over year to C$959 million. Free cash flow increased 14% year over year to C$462 million attributed to lower capital expenditures, partially offset by higher interest on borrowings.

Rogers Communications paid C$253 million in dividends in the reported quarter.

Rogers Communications ended the first quarter with a debt leverage ratio (adjusted net debt/adjusted EBITDA) of 2.7, down 20 bps from the end of 2019.

Guidance Withdrawal for 2020

Rogers withdrew 2020 financial guidance, given the uncertainty associated with the impact of the coronavirus pandemic.

Revenues were previously expected to be down 2% to up 2% while adjusted EBITDA was expected to increase up to 2%.

Capital expenditure was expected in the range of C$2.7-2.9 billion. Free cash flow was expected to increase in the range of 2% to 4%.

Nonetheless, the company expects to expand the Rogers 5G network to over 20 more markets in 2020.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended downward during the past month. The consensus estimate has shifted -23.4% due to these changes.

VGM Scores

At this time, Rogers Communication has an average Growth Score of C, however its Momentum Score is doing a lot better with an A. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Rogers Communication has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.


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