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BCE Misses Q2 Earnings Estimates Despite Higher Revenues

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BCE Inc. (BCE - Free Report) reported mixed second-quarter 2018 results wherein the bottom line missed the Zacks Consensus Estimate while the top line surpassed the same.

Net Income

Quarterly net earnings decreased 8% year over year to C$704 million or C$0.79 per share ($545.4 million or 61 cents per share). Despite higher revenues, the bottom line declined due to higher depreciation and amortization and other expenses.

Adjusted net earnings came in at C$777 million or C$0.86 per share ($601.9 million or 65 cents per share), down 3.4% year over year. The decline was due to the pickup of some operating losses from the company’s minority interest equity investments. The bottom line missed the Zacks Consensus Estimate by 2 cents.

BCE, Inc. Price, Consensus and EPS Surprise

Revenues

Operating revenues increased 1.7% year over year to C$5,786 million ($4,483 million), beating the Zacks Consensus Estimate of $4,469 million. The improvement was driven by revenue increase at both Bell Wireless and Bell Wireline, partly offset by a modest year-over-year revenue decline at Bell Media.

Operating Metrics

Adjusted EBITDA (earnings before interest, tax, depreciation and amortization) were C$2,430 million ($1,882.5 million), up 2% year over year. Adjusted EBITDA margin increased to 42% from 41.9% in the prior-year quarter. This reflected the high flowthrough of strong wireless revenue growth, increasing broadband Internet scale, improved year-over-year wireline business markets performance, and disciplined spending on wireless postpaid and residential wireline subscriber acquisitions.

Segmental Performance

Quarterly operating revenues from Bell Wireless increased 5% year over year to C$2,046 million ($1,585 million), driven by strong subscriber base growth and a greater proportion of postpaid users in the customer mix compared to last year as well as increased sales of higher value smartphones. Service revenues improved 3.6% year over year to C$1,574 million ($1,219.3 million), reflecting continued subscriber base expansion including a higher proportion of postpaid customers. Product revenues increased 9.8% to C$472 million ($365.6 million) due to increased sales of higher-value smartphones.

Total operating revenues from Bell Wireline increased 0.6% year over year to C$3,135 million ($2,428.6 million). Service revenues were up 0.4% to C$2,947 million ($2,282.9 million). Product revenues increased 3.9% to C$188 million ($145.6 million). The year-over-year improvement was led by positive residential services revenue growth, driven by strong Internet and IPTV customer gains and higher household average revenue per user as well as improved Bell Business Markets performance from higher Internet Protocol broadband connectivity revenue and increased sales of professional services.

Bell Media generated revenues of C$791 million ($612.8 million), down 0.6% year over year as advertising revenues for conventional and non-sports specialty TV decreased due to ongoing market softness and viewership declines for traditional linear TV. This was moderated by advertising revenues from the 2018 FIFA World Cup, increases at specialty TV news service CP24 and continued growth in Astral outdoor advertising.

Cash Flow

For the first six months of 2018, BCE generated C$3,553 million of cash from operations compared with C$3,467 million in the year-ago period. Free cash flow for the first half of the year was C$1,531 million compared with C$1,583 million in the year-ago period.

Liquidity

As of Jun 30, 2018, BCE had cash and cash equivalents of C$390 million ($296.7 million) with long-term debt of C$18,367 million ($13,975.2 million).

2018 Outlook

BCE has reiterated its financial targets for 2018. The company expects revenues to grow between 2% and 4%. While adjusted EBITDA is expected to rise 2-4%, adjusted EPS is expected between C$3.45 and C$3.55. Free cash flow is expected to grow in the range of 3-7%. 

Zacks Rank & Stocks to Consider

BCE currently has a Zacks Rank #3 (Hold). Better-ranked stocks in the broader industry include Arista Networks, Inc. (ANET - Free Report) , Corning Incorporated (GLW - Free Report) and SeaChange International, Inc. (SEAC - Free Report) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Arista has a long-term earnings growth expectation of 21.2%. It beat earnings estimates in each the trailing four quarters, the average being 25.5%.         

Corning has a long-term earnings growth expectation of 8.2%. It beat earnings estimates in each the trailing four quarters, the average being 3.8%.         

SeaChange has a long-term earnings growth expectation of 10%. It surpassed earnings estimates thrice in the trailing four quarters with an average positive surprise of 282.8%.     

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C$1 = $0.774678 (Period average from Apr 1, 2018 to Jun 30, 2018)

C$1 = $0.760884 (As on Jun 30, 2018)



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