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BCE Lags Q2 Earnings and Revenue Estimates, Reiterates View

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Leading Canadian telecom operator, BCE Inc. (BCE - Free Report) , reported weak financial results in the second quarter of 2017. Both the top and the bottom line missed the Zacks Consensus Estimate.

Quarterly net income was approximately $602.57 million, down 2.3% year over year. However, GAAP earnings per share were 84 cents, down 5.6% year over year. Adjusted net income per ADS (American Depository Share) came in at 65 cents, lagging the Zacks Consensus Estimate of 67 cents. The bottom line declined 1.52% on a year-over-year basis.

Total revenue was approximately $4,235.5 million, up 6.39% year over year but below the Zacks Consensus Estimate of $4,337.5 million. Adjusted EBITDA (earnings before interest, tax, depreciation and amortization) came in at about $1,769.08 million, increasing 4.9% year over year. Quarterly adjusted EBITDA margin was 41.8% compared with 42.5% in the prior-year quarter.

BCE, Inc. Price, Consensus and EPS Surprise


BCE, Inc. Price, Consensus and EPS Surprise | BCE, Inc. Quote

Cash Flow

In the second quarter of 2017, BCE generated approximately $1,600.42 million of cash from operations, up 14% year-over-year. Free cash flow in the reported quarter was around $812.84 million versus $693.96 million in the year-ago quarter.

Segments in Detail

Bell Wireless: Revenues from Bell Wireless increased 12.9% year over year to $1,455.54 million. Services revenues climbed 12.8% to approximately $1,358.20 million, as a result of strong postpaid subscriber base growth, higher blended average revenue per user (ARPU) and a full quarter of contribution from Bell MTS. Product revenue was up 13.9% to $97.33 million, owing to higher sales of premium mobile devices and more customer transactions.

Wireless adjusted EBITDA in the second quarter grew 10.2% to $632.29 million, on strong double-digit service revenue growth from an increased mix of higher-value postpaid subscribers in our overall customer base and price discipline.

Blended ARPU (average revenue per user) increased 4.6% to $49.99, driven by an increased postpaid subscriber mix, LTE data usage growth, a larger proportion of subscribers on higher-rate plans with larger data thresholds in the overall revenue mix and the flow-through of pricing changes from 2016. Postpaid customer churn decreased 0.07 % points in Q2 to 1.08%.

During the reported quarter, BCE added a net of 88,611 postpaid wireless subscribers, up 26.9% year over year. As of Jun 30, Bell Wireless postpaid customers totaled 8,126,264, up 8.8% year over year. Total wireless customers grew 7.5% to 8,901,291, which included a reduction of 104,833 postpaid customers in this quarter to reflect the divestiture of subscribers to Telus as part of BCE's MTS acquisition. The percentage of postpaid subscribers on LTE reached 85% in second-quarter 2017, up from 76% in the year-ago period.

Bell Wireline: Revenues from Bell Wireline service increased 4.8% year over year to approximately $2,318.90 million. Wireline data service revenue increased 6.7% to $1,335.91 million while Wireline product revenue decreased 0.8% to $176.83 million. Local and access revenue increased 4.1% to $604.06 million due to the incremental financial contribution of Bell MTS and residential rate increases. Long distance revenue decreased 8.7% to $124.08 million.

Wireline adjusted EBITDA increased 2.6% to $970.36 million in the quarter under review.

Total network access services (NAS) lines in second-quarter 2017, was 6,479,315, up slightly from 6,476,683 last year.Residential NAS losses during the reported quarter improved 2.3% to 67,005 from 68,593 in the prior-year quarter. Business NAS net losses increased to 27,954 from 20,232 in the year-ago period.

As of Jun 30, 2017, BCE had a total of 2,824,016 TV subscribers, up 2.7% compared to 2,750,596 in the year-ago quarter. At the end of the reported quarter, BCE served 1,481,434 IPTV subscribers, up 17.0% year over year. Satellite TV net customer losses improved 10.2% to 29,764 compared to last year.  High-speed Internet customer base totaled 3,718,677, up 8.8% year-over-year. In the quarter under review, BCE added 16,427 net new Fibe TV subscribers in the second quarter, a decrease from 35,255 gained last year and 1,407 net additions of high-speed Internet , down from 7,539 in Q2 2016.

Additionally, 17,426 new net fiber-to-the-home (FTTH) Internet customers were added in the quarter under review, driven by a rapidly-expanding broadband fiber footprint that grew to 3.4 million locations at the end of the quarter, up from 3.2 million at the end of first-quarter 2017. This was moderated by higher customer churn in areas where Bell FTTH service is not available and higher year-over-year student deactivations, resulting in total.

Bell Media: Bell Media generated quarterly revenues of $591.43 million, up 2.2% year-over-year, on higher advertising and subscriber revenues.

Common Share Dividend

BCE's Board of Directors has declared a quarterly dividend of $0.7175 per common share, payable on Oct 15, 2017 to shareholders of record at the closure of business on Sep 15, 2017.

Outlook for 2017

BCE confirmed its financial guidance for 2017, as updated on Apr 26, 2017 to reflect the acquisition of MTS. The company expects adjusted earnings per share of C$3.30–C$3.40 while free cash flow growth is likely to be around 5–10%. Annual dividend per share is projected at C$2.87, reflecting a dividend pay-out policy of 65–75%. Revenue growth is expected to be around 4–6%, while EBITDA growth is also estimated at roughly 4–6%. Capital intensity projection is pegged at approximately 17%. 

Zacks Rank and Price Performance

BCE currently carries a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Over the past three months, share price of BCE have marked growth of 2.75% compared with the industry’s growth of 2.99%.

BCE’s strategic moves to enhance employee skills, increase capital investments and reduce expenditures looks impressive. but if not implemented properly might have an adverse impact on the company’s financials and growth prospects, thereby leading to lower profitability and revenues. Moreover, BCE continues to face tough competition from its peers Rogers Communications Inc. (RCI - Free Report) , Shaw Communications Inc. (SJR - Free Report) and TELUS Corp. (TU - Free Report) in the highly competitive Canadian telecom market. 

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