Rogers Communications Inc.s Wireless Division Was Dialed in This Quarter

By Matthew DiLallo Markets Fool.com

Rogers Communications' (NYSE: RCI) wireless growth strategy continues to pay big dividends for the company. Thanks to the combination of a growing subscriber base and the continued adoption of the company's Share Everything plans, Rogers' wireless delivered another quarter of growth on both the top and bottom lines. Those results helped the company overcome continued cord-cutting in its legacy cable business, giving it time as it works on the rollout of new solutions tolift that segment out of its doldrums.

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Rogers Communications results: The raw numbers

Metric

Q1 2017

Q1 2016

Year-Over-Year Change

Revenue

$3.34 billion

$3.25 billion

2.9%

Adjusted net income

$329 million

$245 million

34.3%

Adjusted EPS

$0.64

$0.48

33.3%

Data source: Rogers Communications. All figures in Canadian dollars.

Image source: Getty Images.

What happened with Rogers this quarter?

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Rogers' wireless division led the way again.

  • The wireless segment continues to do most of the heavy lifting for Rogers. During the first quarter, wireless revenue rose 4% to nearly $2 billion. Driving revenue was a combination of subscriber growth, a slight improvement in the customer churn rate, and the continued gravitation toward higher value Share Everything plans. Meanwhile, by keeping costs at bay, the company was able to deliver a 7% year-over-year increase in adjusted operating profit in the segment.
  • The cable division, on the other hand, remains stuck in neutral. That's after an 8% uptick in internet revenue was just enough to offset cord-cutting in the television and phone divisions, where revenue was down 5% and 8%, respectively. Meanwhile, the company's ability to hold the line on costs kept operating profit on pace with last year's result.
  • Rogers' business solutions segment was also basically flat with last year. Overall, revenue dipped 2% because of continued declines in its legacy business as customers switched to its higher margin next-generation service, which kept operating profit even with last year.
  • Finally, media segment revenue edged up 6%, thanks to a distribution by Major League Baseball to the Toronto Blue Jays, as well as higher subscription revenue at Sportsnet and merchandise sales on The Shopping Channel. That said, the media segment still turned in an adjusted operating loss of $28 million, though thatwas an improvement from last year's loss of $49 million.
  • During the quarter, Rogers generated $596 million in cash from operating activities, which was flat year over year. However, free cash flow surged 54% to $338 million because of lower capital expenses.

What management had to say

Interim CEO Alan Horn commented on the quarter:

We are pleased to report strong growth in revenue, adjusted operating profit, and free cash flow this quarter, underpinned by impressive subscriber metrics. We delivered on all wireless fundamentals, including a substantial reduction in postpaid churn, as we pursue an ever-improving experience for our customers. We see strong uptake of our Ignite Internet offerings and continue to expect positive trends as we leverage our cable competitive advantage. Our results are an excellent start to 2017.

Rogers' wireless business continues to drive results, thanks to its ability to win and retain customers. The company is hoping to replicate that success by introducing new products to reignite growth within its cable business. So far, the company's latest internet offering seems to be doing that, as half of its residential base is now on one of its high-speed plans. Meanwhile, the company signed an agreement late last year with U.S. cable giant Comcast (NASDAQ: CMCSA) to strengthen its TV offerings. Rogers expects to launch Comcast's X1 video platform early next year, which it hopes will boost sales. Comcast attributes its rollout of that platform to improving subscriber performance and reducing churn for the company.

Looking forward

Rogers is about to start a new era as Joe Natale takes over the reins as CEO of the company this week. The former Telus (NYSE: TEL) CEO is expected to make changes to the company's strategy to recharge revenue and profit growth. According to analysts, Natale will likely target a reduction in wireless subscriber churn, reversing its losses in television and resuming dividend growth. Given his successes at Telus, which consistently led the industry with a low churn, the hope is that Natale can replicate that at Rogers and reverse its underperformance in that metric. Solving that problem would provide the company with more cash flow, enhancing its ability to raise the payout.

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Matt DiLallo owns shares of Rogers Communications. The Motley Fool recommends Rogers Communications. The Motley Fool has a disclosure policy.