BCE (BCE) Surpasses Q1 Earnings, Lags Revenue Estimates

Leading Canadian telecom operator, BCE Inc. (TO:BCE) reported mixed financial results in the fourth quarter of 2017. The top line failed to meet the Zacks Consensus while the bottom line surpassed the same.

Quarterly net income was approximately $453 million, down 11.9% year over year. However, GAAP earnings per share were 51 cents, down 14.7% year over year. However, adjusted net income per ADS (American Depository Share) came in at 60 cents, a penny higher than the Zacks Consensus Estimate.

BCE, Inc. Price, Consensus and EPS Surprise

Total revenue was approximately $4,692 million, up 9.9% year over year. However, it fell below the Zacks Consensus Estimate of $4737 million. Adjusted EBITDA (earnings before interest, tax, depreciation and amortization) came in at about $1,745.9 million, increasing 4.5% year over year. Quarterly adjusted EBITDA margin was 37.2%, same year over year.

Cash Flow

In the fourth quarter of 2017, BCE generated approximately $1,305.7 million of cash from operations, up 9.1% year over year. Free cash flow in the reported quarter was around $513.5 million, down a substantial 29.4% year over year.

Segments in Detail

Bell Wireless: Revenues from Bell Wireless increased 9.9% year over year to $1,630.1 million. Services revenues climbed 10.6% to approximately $1,491.5 million while product revenues increased 3.5% to approximately $138.6 million. Blended average revenue per user improved 2.4% year over year to $53.76. Postpaid customer churn was 1.35% compared with 1.45% in the year-ago quarter.

During the reported quarter, BCE added a net of 175,204 postpaid wireless subscribers, up a whopping 55.9% year over year. As of Dec 31, 2017, the company had 8,418,650 postpaid subscribers, up 9.5% year over year. The total wireless subscriber base increased 8.2% to 9,166,787. The proportion of postpaid subscribers on LTE reached 88%, up from 81% in Q4 2016.

Bell Wireline: Revenues from Bell Wireline service increased 2.7% year over year to approximately $2,537.3 million. Wireline service revenues were up 3.6% to around $2,261 million. Wireline product revenues decreased 4.4% to $276.4 million.

Total network access services (NAS) lines inched up 1% year over year to 6,320,483, at the end of the reported quarter. Residential NAS losses during the reported quarter were 44,281 compared with 67,385 in the year-ago quarter. Business NAS losses decreased to 29,789 from 33,245 a year ago.

As of Dec 31, 2017, BCE had 2,832,300 TV subscribers, up 3.2% (including 1,550,317 Fibe TV customers, increasing 15.9%) and 3,790,141 high-speed Internet subscribers, up 9% year over year. In the fourth quarter, Bell Wireline added a net of 27,040 high-speed Internet customers and 32,484 Fibe TV customers but lost 25,938 satellite TV subscribers.

Bell Media: Bell Media generated quarterly revenues of approximately $656.8 million, declining 1.3% year over year.

Hike in Dividend

The board of directors of BCE has decided to increase annualized common share dividend by 5.2% or 15 cents per share from $2.87 to $3.02 per year effective with BCE's first-quarter 2018 dividend payable on Apr 15, 2018 to shareholders of record at the close of business on Mar 15, 2018. The higher dividend for 2018 is fully supported by projected growth in free cash flow.

Guidance

BCE provided the financial guidance for 2018. The company expects adjusted earnings per share of C$3.42–C$3.52, while free cash flow growth is likely to be around 3 - 7%. Annual dividend per share will be C$3.02, reflecting a dividend pay-out policy of 65 – 75%. Revenue growth is expected to be around 2 – 4%, while adjusted EBITDA growth is also estimated at roughly 2 - 4%. Capital intensity projection is pegged at approximately 17%.

Zacks Rank

BCE competes with its peers Rogers Communications (NYSE:RCI) , Shaw Communications (NYSE:SJR) and TELUS (NYSE:TU) in the highly competitive Canadian telecom market. BCE currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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