BCE Beats on Q1 Earnings and Revs - Analyst Blog

Canada's leading telephone operator BCE Inc. BCE reported first-quarter 2014 adjusted earnings of 81 Canadian cents per share (73 cents per ADS), beating the Zacks Consensus Estimate of 69 cents. Results also improved 5.2% year over year owing to a higher EBITDA at Bell.

Revenues grossed C$5.1 billion ($4.63 billion), beating the Zacks Consensus Estimate of $4.61 billion and improving 3.7% year over year. Strong performances at the Wireless and Media segments were offset by the weakness in Wireline voice and data services.

EBITDA grew 4.1% year over year to C$1.7 billion ($1.5 billion) in the reported quarter fueled by strong contributions from Bell Wireless and Bell Media.

Segments in Detail

BellWireless: Revenues from Bell Wireless increased 4.5% year over year to C$1.47 billion ($1.33 billion). Higher service revenues (up 4.7%), resulting from higher postpaid subscriber (up 3.5%) and wireless data revenue growth (up 17.5%), and better-blended ARPU (average revenue per user) boosted the results.

BCE lost 15,678 net wireless subscribers during the reported quarter, bringing the total to 7.76 million, up 1.2% year over year. Post-paid net additions decreased by 42.9% from the year-ago quarter to 33,964. Blended ARPU rose 3.5% year over year to C$57.90 ($52.54) on the back of increasing post-paid subscribers in wireless customer base plus more subscribers opting for mobile data services.

Churn rate (customer switch) improved to 1.58% from 1.65% in the year-ago quarter.  Post-paid churn declined from 1.25% a year ago to 1.24%, and prepaid churn fell from 3.79% to 3.67% in the quarter.

BellWireline: Revenues from Bell Wireline fell 1.8% year over year to C$2.46 billion ($2.23 billion) due to lower local and access (down 6.7%), long distance (down 12.0%) and equipment and other revenues (down 9.1%).

Network access services (NAS) fell 7.1% year over year to 5.14 million. The decline was primarily due to competition from cable operators and substitution of the service wireless and IP-based technologies. Residential NAS losses during the quarter were 65,638 compared with 83,557 in the first quarter of 2013. Business NAS losses were 35,595 against 24,889 in the year-ago quarter.

BCE activated 15,627 high-speed Internet customers compared with 3,952 in the year-ago period. At the end of the first quarter, TV subscribers grew 6.3% year over year to 2.31 million.

BellMedia: Bell Media generated revenues of C$722.0 million ($655 million), surging 40.7% year over year. The upsurge was attributable to strong advertising and high subscriber revenues from the Astral acquisition along with higher rates paid by broadcasters for Bell Media contents.

BellAliant: Revenues from this segment dropped 1.2% year over year to C$676.0 million ($613 million), as improvement in Internet and TV services were hurt by reduced voice revenues and intense pricing competition.

Liquidity

BCE exited the first quarter with C$982 million (approximately $301.5 million) of cash from operating activities compared with C$1.04 billion (approximately $1.03 billion) in the first quarter of 2013. Capital expenditure for BCE during the year was C$594 million ($539 million), flat year over year.

Guidance

For 2014, BCE reaffirmed its financial guidance.

The company expects EPS of C$3.10–$3.20 while free cash flow growth will be around 3–7%. Annual dividend per share will be $2.47 reflecting a dividend payout policy of 65–75%.

Excluding Bell Alliant, revenue growth for Bell is expected around 2–4%, while EBITDA growth is estimated at around 3–5%. Capital intensity projection for Bell is around 16–17%.

Our Take

The company displays a robust wireless business model, improving wireline operations and expanding activities in the media sector. However, stiff competition from other players like TELUS Corporation TU and RogersCommunications Inc. RCI, continued decline in network access services, constant need to invest in technology and union issues remain the primary concerns for the company.

BCE currently retains a Zacks Rank #3 (Hold).

Other Stocks

A better-ranked stock in this sector is Level 3 Communications, Inc. LVLT with a Zacks Rank #1 (Strong Buy).

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