BCE Inc. (BCE) Misses Earnings & Revenue Estimates In Q1

Leading Canadian telecom operator BCE Inc. (TO:BCE) reported disappointing financial results in the first quarter of 2016, with both the top and bottom line lagging the respective Zacks Consensus Estimate.

This Zacks Rank #1 (Strong Buy) company competes with its peers Rogers Communications Inc. (NYSE:RCI) , Shaw Communications Inc. (NYSE:SJR) and TELUS Corp. (NYSE:TU) in the highly competitive Canadian telecom market.

Quarterly net income was approximately $542 million, up 32.9% year over year. GAAP earnings per ADS (American Depository Share) were 60 cents, up 30.2% year over year. However, adjusted net income per ADS came in at 62 cents, missing the Zacks Consensus Estimate of 65 cents.

Total revenue was approximately $3,841 million, up 0.6% year over year but well short of the Zacks Consensus Estimate of $4,442 million. Adjusted EBITDA (earnings before interest, tax, depreciation and amortization) was about $1,577 million, up 3.3% year over year. Quarterly adjusted EBITDA margin was 41% compared with 40% in the prior-year quarter.

Cash Flow

During the first quarter of 2016, BCE generated approximately $940.4 million of cash from operations, up 23.4% year over year. Free cash flow in the reported quarter was around $304.7 million, up 81% year over year.

Segments in Detail

Bell Wireless: Services revenues climbed 5.3% to $1,151 million while product revenues decreased 18.1% to approximately $76 million. Blended average revenue per user improved 3.6% year over year to $45.94. Postpaid customer churn was 1.15% against 1.18% in the year-ago quarter.

During the reported quarter, BCE added a net of 25,805 postpaid wireless subscribers compared with 35,373 in the prior-year quarter. As of Mar 31, 2016, the company had 7,401,221 postpaid subscribers, up 3.6% year over year. The total wireless subscriber base increased 1.6% to 8,235,963. At first-quarter end, 82% of the total postpaid wireless customers used smartphones compared with 77% at the end of the year-earlier quarter. The proportion of postpaid subscribers on LTE reached 73%, up from 52% a year earlier.

Bell Wireline: Revenues from Bell Wireline declined 1.5% year over year to approximately $2,174.6 million. Wireline data revenues were up 2.1% to $1,307.8 million. Local and access revenues declined 4.2% to $575.2 million. Long distance revenues were down 10.3% to $139.2 million.

Network access services (NAS) lines fell 6.4% year over year to 6,565,508, at the end of the reported quarter. Residential NAS losses during the reported quarter were 67,428 compared with 65,870 in the year-ago quarter. Business NAS losses narrowed to 40,204 from 44,069 a year ago.

As of Mar 31, 2016, BCE had 2,748,495 TV subscribers, up 3.4% (including 1,230,531 Fibe TV customers, an increase of 24.3%) and 3,411,246 high-speed Internet subscribers, up 3.4% year over year. In the first quarter, Bell Wireline added a net of 19,783 high-speed Internet customers and 47,740 Fibe TV customers, but lost 37,741 satellite TV subscribers.

Bell Media: Bell Media generated quarterly revenues of approximately $540.2 million, up 2.1% year over year.

Guidance

BCE issued its financial guidance for 2016. The company expects adjusted earnings per share of C$3.45–C$3.55 while free cash flow growth is likely to be around 4–12%. Annual dividend per share is projected at C$2.73, reflecting a dividend payout policy of 65–75%. Revenue growth is expected at around 1–3%, while EBITDA growth is estimated at roughly 2–4%. Capital intensity projection is pegged at approximately 17%.