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Why Is Rogers Communication (RCI) Down 5.7% Since Last Earnings Report?

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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 5.7% 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.

Higher Wireless & Cable Revenues Aid Rogers Q2 Earnings

Rogers Communications reported second-quarter adjusted earnings of 87 cents per share that missed the Zacks Consensus Estimate by a couple of cents.

Total revenues of $2.83 billion also missed the consensus mark of $2.96 billion.

Adjusted earnings however increased 8.4% year over year to C$1.16 per share. Total revenues increased 0.6% year over year to C$3.78 billion.

Investors should note that second-quarter 2019 results were reported per IFRS 16.

Notably, Rogers Media, a subsidiary of Rogers Communications, acquired Vancouver-based podcasting company, Pacific Content during the quarter.

Wireless Details

Wireless (59.4% of total revenues) increased 1.4% from the year-ago quarter to C$2.24 billion.

Service revenues climbed 3% to C$1.81 billion, attributable to an expanded postpaid subscriber base and increase in the number of customers choosing higher-priced plans.

Equipment revenues were down 4.9% to C$431 million due to lower device upgrades by existing users and decline in gross postpaid subscriber additions owing to softness in the market.

Monthly blended average revenue per user was C$56.73, up 2% year over year. Monthly blended average billings per user was C$67.16, up 3.6%.

As of Jun 30, 2019, prepaid subscriber base totaled almost 1.4 million, a loss of 254K subscribers from the year-ago quarter. Monthly churn rate was 4.43% compared with 3.98% in the year-ago quarter.

As of Jun 30, 2019, postpaid wireless subscriber base totaled roughly 9.2 million, a subscriber gain of 336K from the year-ago quarter. Monthly churn rate declined to .99% from 1.01% in the year-ago quarter. The lower churn rate was due to enhanced customer experience and improved quality of Rogers Communications’ network.

Segment operating expense decreased 5.8% from the year-ago quarter to C$1.12 billion.

Adjusted EBITDA increased 9.6% year over year to C$1.13 billion. Adjusted EBITDA margin expanded 380 basis points (bps) on a year-over-year basis to 50.3%.

Cable Details

Cable (26.4% of total revenues) inched up 0.6% from the year-ago quarter to C$997 million. The increase was due to higher Internet subscriber base and shift of Internet users to higher-usage tiers.

Service revenues climbed 0.5% to C$993 million.

Internet revenues increased 6.5% year over year due to user shift toward higher-GB tiers and increase in subscriber base, partially offset by increased promotional activities. As of Jun 30, 2019, Internet subscriber count was nearly 2.46 million, up 96K from the year-ago quarter.

During the quarter, Rogers Communications launched unlimited data plans with no overage charges. Its Infinite plan with unlimited wireless data starts at $75 for 10GB of high-speed data for every line. Customers requiring more high-speed data will have the option to purchase a Speed Pass for $15 for 3GB.

The company is set to launch new financing options, giving customers more affordable smartphone and device opportunities.

Television revenues were down 0.6% year over year due to decline in subscriber base. This was offset by pricing changes and addition of new Ignite TV subscribers.

Rogers Communications lost 88K subscribers on a year-over-year basis to reach an installed base of almost 1.63 million in the Television segment.

Phone revenues plunged 30.1% year over year primarily due to bundled discount pricing. Subscriber count was nearly 1.1 million, a decline of 24K from the year-ago quarter.

Equipment revenues jumped 33.3% year over year to C$4 million.

Segment operating expense decreased 1.9% from the year-ago quarter to C$519 million.

Adjusted EBITDA increased 3.5% year over year to C$478 million. Adjusted EBITDA margin expanded 130 bps on a year-over-year basis to 47.9%.

Media Details

Media (15.6% of total revenues) declined 2.8% from the year-ago quarter to C$591 million. The decline in revenues was primarily due to the sale of the company’s publishing business and lower Toronto Blue Jays revenues.

Segment operating expense decreased 5.3% year over year to C$519 million primarily attributed to lower publishing-related costs and Toronto Blue Jays player salaries.

Adjusted EBITDA increased 20% year over year to C$72 million.

Consolidated Results

Operating costs declined 4.8% from the year-ago quarter to C$2.15 billion. As a percentage of revenues, operating costs increased 320 bps to 56.7%.

Adjusted EBITDA increased 8.7% from the year-ago quarter to C$1.64 billion. Adjusted EBITDA margin expanded 320 bps to 43.3%.

Balance Sheet & Cash Flow Details

As of Jun 30, 2019, Rogers Communications had cash and cash equivalents of $404 million compared with $264 million at the end of the previous quarter.

Cash provided by operating activities increased 0.9% year over year to C$1.05 billion. However, free cash flow declined 2.4% year over year to C$609 million due to increase in cash income taxes for the reported quarter. This was negated by “lower interest on borrowings.”

Rogers Communications paid C$257 million in dividends in the reported quarter. The company repurchased shares worth $55 million.

Rogers Communications ended the second quarter with a debt leverage ratio (adjusted net debt/adjusted EBITDA) of 3, up from 2.5 at the end of 2018.

Guidance for 2019

Revenues are expected to increase in the range of 3. Adjusted EBITDA is expected to increase in the range of 7.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates.

VGM Scores

At this time, Rogers Communication has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. However, the stock was allocated a grade of B on the value side, putting it in the second quintile 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.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Rogers Communication has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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