Mixed 4Q for Rogers Communications

Rogers Communications Inc. (RCI - Analyst Report) declared mixed financial results for the fourth quarter of 2011. However, wireless business, which accounts for nearly 58% of its total revenue, continues with its dream run with record breaking smartphone activations.

Quarterly net income was $320.5 million or 60 cents per share compared with a net income of $296 million or 49 cents per share in the year-ago quarter. The fourth-quarter adjusted EPS was 69 cents, beating the Zacks Consensus Estimate of 67 cents. Quarterly total revenue was $3,114 million, up 1% year over year, but fell below the Zacks Consensus Estimate of $3,248 million.

Fourth-quarter adjusted operating profit was $1,072.1 million, up 3% year over year. Quarterly adjusted operating margin was 34.4% compared with 33.9% in the year-ago quarter. During the fourth quarter, the company repurchased $366.5 million of Class B non-voting shares and paid dividend totaling $186.2 million.

During the fourth quarter of 2011, Rogers Communications generated $1,004.5 million of cash from operations compared with $875.1 million in the year-ago quarter. Free cash flow during the reported quarter was $364.6 million compared with $296 million in the year-ago quarter.

At the end of 2011, Rogers Communications had $1,085 million of cash and marketable securities on its balance sheet compared with $878 million at the end of 2010. Total outstanding debt, at the end of 2011, was $9,833 million compared with $8,654 million at the end of 2010. At the end of 2011, debt-to-capitalization ratio was 0.74 compared with 0.69 at the end of 2010.

Wireless Segment

Quarterly total revenue was $1,789.5 million, up 2% year over year. Network revenue was $1,608.2 million, remaining same year over year. Equipment sales were $181.3 million, up 26% year over year. Quarterly adjusted operating profit for the entire segment was $656.6 million, down 5% year over year.

Adjusted operating margin was 40.8% in the reported quarter compared with 42.9% in the year-ago quarter. In the fourth quarter of 2011, wireless Data revenue was $588 million, up 19% year over year. Wireless Data revenue represented around 37% of total wireless network revenue compared with 31% in the prior-year quarter.

During the fourth quarter of 2011, wireless segment activated a record high 791,000 smartphones, up 24.6% year over year. Most of these smartphones are either iPhone of Apple Inc. (AAPL - Analyst Report), BlackBerry of Research In Motion Ltd. (RIMM - Analyst Report) or Google Inc. (GOOG - Analyst Report) developed Andriod-based handsets. Out of the total, around 35% were new smartphone subscribers. Quarterly consolidated ARPU (average revenue per user) was $57.64, down 4.1% year over year.

On December 31, 2011, Postpaid retail subscribers’ base was around 7.574 million, up 3.4% year over year. Smartphone customers now constituted 56% of overall Postpaid subscribers compared with 41% in the year-ago quarter. Quarterly Postpaid ARPU was $67.26, down 3.8% year over year. Monthly churn rate was 1.49% compared with 1.35% in the prior-year quarter.

Prepaid subscribers’ base was around 1.761 million, up 6.6% year over year. Quarterly Prepaid ARPU was $16.51, up 4.7% year over year. Monthly churn rate was 3.51% compared with 3.04% in the prior-year quarter.

Cable Segment

Quarterly total revenue was $934 million, remaining same year over year. Basic cable operations revenue was $821.2 million, up 3% year over year. RBS revenue was $91.2 million, down 16% year over year. Video revenue was $21.6 million, down 31% year over year.

Quarterly adjusted operating profit for the whole segment was $407.7 million, up 14% year over year. Adjusted operating margin was 48.1% in the reported quarter compared with 45.9% in the year-ago quarter.

On December 31, 2011, Cable TV subscribers’ base was around 2.297 million, down 0.35% year over year. High-speed Internet subscribers’ base was 1.793 million, up 6.4% year over year. Digital cable terminal base was 1.777 million, up 2.5% year over year. Cable Telephony lines were 1.052 million, up 4.9% year over year.

Media Segment

Quarterly total revenue was $419.5 million, up 3% year over year. Quarterly adjusted operating income was $43.1 million, up 83% year over year. Adjusted operating margin was 10.3% in the reported quarter compared with 5.8% in the year-ago quarter.

Future Financial Outlook

Rogers Communications has provided guidance that its fiscal 2012 adjusted operating income will be C$4,730 million - C$4,915 million. Pre-tax free cash flow will be C$1,950 million - C$2,050 million. Wireless network revenue will be C$6,650 million-C$6,820 million. Wireless adjusted operating profit will be C$3,025 million-C$3,175 million. Cable revenue will be C$3,385 million-C$3,460 million. Cable adjusted operating profit will be C$1,550 million-C$1,600 million. Media revenue will be C$1,690 million-C$1,750 million. Media adjusted operating profit will be C$190 million-C$215 million.

New Capital Return Program

Rogers Communications declared that its Board of Directors has approved an 11% increase in the annualized dividend to C$1.58 per share effective immediately. Further, the Board has approved a renewed share buyback program for the repurchase of up to C$1.0 billion of Class B Voting shares on the open market during the next twelve months.

Our Recommendation

We maintain our long-term Neutral recommendation on Rogers Communications. Currently, it has a short-term Zacks #3 Rank (Hold) on the stock.

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