It has been about a month since the last earnings report for Rogers Communication (
RCI Quick Quote RCI - Free Report) . Shares have added about 3.1% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Rogers Communication due for a pullback? 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 Tops Q3 Earnings, Revenue Estimates
Rogers Communications reported third-quarter 2020 adjusted earnings of 81 cents per share that beat the Zacks Consensus Estimate by 30.6%.
Total revenues of $2.75 billion also beat the consensus mark by 9.3%. Adjusted earnings declined 9.2% year over year to C$1.08 per share. Total revenues decreased 2.4% year over year to C$3.66 billion due to decline in Wireless service and equipment revenues as a result of lower subscriber activity attributed to the coronavirus outbreak. Wireless Details
Wireless (60.8% of total revenues) decreased 4.1% from the year-ago quarter to C$2.22 billion as a result of lower roaming revenues due to global travel restrictions during COVID-19 and reduced overage revenues, primarily as a result of continued adoption of Rogers Infinite unlimited data plans.
During the quarter, the company expanded Canada's first and largest 5G network to 130 cities and towns. Additionally, Rogers launched a 5G Smart Campus at University of Waterloo to help enable the research and commercialization of madein-Canada 5G technology and applications Moreover, the company announced the acquisitions of Cable Cable Inc. and Ruralwave Inc., and local telecommunications companies in the Ontario Kawartha Lakes region to expand its network and serve more customers. Service revenues dropped 8.6% to C$1.65 billion, thanks to contraction in prepaid subscriber base and blended average revenue per user (ARPU) as a result of lower roaming revenues associated with drop in overall roaming activity due to travel barriers and decrease in overage revenues due to faster adoption of Rogers Infinite unlimited data plan launched last quarter. Equipment revenues were up 11.6% to C$576 million due to higher device upgrades by existing customers. Monthly blended ARPU was C$51.1, down 8.7% year over year primarily as a result of declines in overage and roaming revenues. Meanwhile, monthly blended average billing per user (ABPU) was C$63.6, down 5.4% primarily as a result of declines in roaming, overage, and other fee revenues due to COVID-19. As of Sep 30, 2020, prepaid subscriber base totaled almost 1.3 million, highlighting a loss of 178K subscribers from the year-ago quarter. Monthly churn rate was 3.46% compared with 4.74% in the year-ago quarter. As of Sep 30, 2020, postpaid wireless subscriber base totaled roughly 9.56 million, up 209K from the year-ago quarter driven by strong adoption of Rogers Infinite plans by new customers. Monthly churn rate was 1.1% compared with 1.2% in the year-ago quarter. Postpaid subscriber growth was driven by gradual store openings and an increase in market activity by Canadians. Segment operating expenses declined 4% from the year-ago quarter to C$1.13 billion. Adjusted EBITDA decreased 4.3% year over year to C$1.08 billion. Adjusted EBITDA margin contracted 10 basis points (bps) on a year-over-year basis to 48.9%. Cable Details
Cable revenues (27% of total revenues) declined 0.6% year over year to C$988 million due to bundled pricing constructs that provided home phone for a lower cost and movement of Internet customers to higher speed and waiving certain fees. Service revenues decreased 0.4% year over year to C$985 million.
As of Sep 30, 2020, Internet subscriber count was nearly 2.57 million, up 67K from the year-ago quarter. During the quarter, Rogers launched Ignite SmartStream, an entertainment add-on for Ignite Internet customers, to give customers access to their favourite streaming services in one place. Ignite TV subscriber count was nearly 437K in the Television segment, reflecting an increase of 253K from the year-ago quarter. The company expanded free content on Ignite TV with the introduction of two apps, Fun at Home and Health at Home. Equipment revenues declined 40% year over year to C$3 million. Segment operating expenses decreased 3% from the year-ago quarter to C$480 million. Adjusted EBITDA increased 1.8% year over year to C$508 million. Adjusted EBITDA margin expanded 120 bps on a year-over-year basis to 51.4%. Media Details
Media (13.3% of total revenues) improved 1.2% from the year-ago quarter to C$489 million, primarily as a result of higher revenues associated with the resumption of NHL hockey, partially offset by lower revenues at the Toronto Blue Jays due to COVID-19.
Segment operating expenses increased 13.3% year over year to C$400 million, primarily attributed to higher programming costs, as a result of the resumption of NHL hockey. Consolidated Results
Operating costs decreased 0.1% to C$2.02 billion. As a percentage of revenues, operating costs expanded 90 bps to 55.3%.
Adjusted EBITDA declined 4.3% year over year to C$1.63 billion. Adjusted EBITDA margin contracted 90 bps to 44.7%. Other Details
During the quarter, Rogers announced agreement with Altice USA, Inc to purchase all of the Canadian assets of Cogeco Inc. and Cogeco Communications Inc. for a net purchase price of approximately $4.9 billion.
On Oct 18, Altice USA presented a revised offer to Cogeco. If the offer is accepted by Cogeco, Rogers would acquire Cogeco’s Canadian assets for $6 billion, less the value of Rogers’ investment in Cogeco of $2.3 billion (which is inclusive of the bid premium), for net cash consideration of $3.7 billion. Balance Sheet & Cash Flow Details
As of Sep 30, 2020, Rogers Communications had $5.5 billion of available liquidity, including $2.2 billion in cash and cash equivalents and a combined $3.3 billion available under bank credit facility compared with C$1.8 billion at the end of the previous quarter.
Cash provided by operating activities dropped 24.4% year over year to C$986 million. Free cash flow increased 13.2% year over year to C$868 million. Rogers Communications paid C$253 million in dividends in the reported quarter. The company ended the third quarter with a debt leverage ratio (adjusted net debt/adjusted EBITDA) of 3, up 20 bps from the year-ago quarter. How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in estimates revision. The consensus estimate has shifted 26.99% due to these changes.
At this time, Rogers Communication has a subpar Growth Score of D, however its Momentum Score is doing a lot better with an A. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Rogers Communication has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.