Rogers Communications posts lower Q2 net earnings on flat revenues

TORONTO – Rogers Communications Inc. (TSX:RCI.B) reported Thursday a lower second-quarter profit but beat analyst expectations as it focused on improving its operations.

The cable and wireless company earned $405 million on flat year-over-year revenue of $3.2 billion, but showed signs of strength in its wireless operations.

“It’s obviously still very early days, but there’s tremendous amount of work going on behind the scenes, setting the stage and we’re making progress putting in place a new team and structure as well as cascading that structure and accountability down the whole organization,” chief executive Guy Laurence said in a conference call with analysts Thursday.

“I’m confident that you will see us moving in the right direction over the coming quarters.”

The quarterly profit amounted to 76 cents per diluted share, down 24 per cent from $532 million, or 93 cents, in the same quarter of 2013.

Excluding one-time, the company earned $432 million, or 84 cents for the three months ended June 30, versus $497 million, or 96 cents, in the same quarter last year.

Analysts on average had expected adjusted net income of 84 cents, according to data compiled by Thomson Reuters.

Wireless revenue at Rogers slipped in the quarter to $1.8 billion, down from $1.81 billion a year ago.

However, the company said that excluding a decline in roaming revenue due to the new cellphone roaming plans introduced during the past year, wireless network revenue would have been two per cent higher than in the second quarter of 2013.

Net additions of post-paid wireless customers, those generally on smartphone contracts, totalled 38,000, down from 98,000 in the same quarter last year, while Rogers lost 31,000 pre-paid customers compared with a loss of 56,000 a year ago.

The monthly average revenue per post-paid user for the quarter was $66.40, down from $67.36 a year ago, while the average pre-paid user revenue was $15.40, down from $15.71.

Meanwhile, cable revenue was $872 million, up from $870 million a year ago, as continued Internet revenue growth and the pricing changes across all product types was mostly offset by television subscriber losses.

RBC analyst Drew McReynolds said the better than expected postpaid average revenue per user (ARPU) “suggests worst is over” for the wireless segment, saying the improvement is partly attributable to “an easing of promotions, the flow-through of higher-priced two-year plans and now postpaid ARPU that is reaching or has reached parity with Bell and Telus.”

The company eliminated several hundred middle management positions earlier this week as part of its Rogers 3.0 corporate revitalization plan, a move that analysts said was needed after a period of stagnation.

“We haven’t finished yet,” Laurence told reporters in a separate call.

Laurence said that there are 10 layers of hierarchy between the CEO and the front line staff at Rogers and some of those layers must go if the company is to be more agile.

“We expect to be through this by September. Obviously, once we’ve got more information on it, we’ll be happy to share.”

Rogers has been losing market share to long-time rivals BCE Bell (TSX:BCE) and Telus (TSX:T) despite having Canada’s largest base of mobile phone subscribers, and there’s concern that Quebecor’s Videotron (TSX:QBR.B) could add to the pressure if it decides to expand its wireless business beyond Quebec.

It also suffered a blow when Bell and Telus rolled out faster mobile networks and new television services.

Laurence declined to discuss the potential of any additional partnerships with Quebecor should it expand outside its home province, saying if the company was serious and wanted to talk to Rogers, “they know where we are.”

“I have no idea how the conversation would end up, but we haven’t had the conversation.”

— With files from David Paddon.