Rogers profit dips on media, retail declines

Last Updated: Tuesday, October 27, 2009 | 11:53 AM EDT

Financial Post

Rogers Communications Inc. reported a 2% drop in profit Tuesday on declines in its media and retail segments.

The company posted profit of $485-million (79 cents a share) for the quarter ended Sept. 30, down from $495-million (78 cents) in the same period in 2008.

Rogers posted revenue of $3.04-billion in the quarter, up 2% compared with $2.98-billion at the same time last year.

"Our third quarter results represent a healthy balance of growth, cost control and margin expansion," Nadir Mohamed, chief executive of Rogers, said in a release. "The results of the quarter reflect record high growth in our wireless data revenues ... which reflects the success of the investments we've made over the past several quarters brining smartphones to market."

In the quarter, wireless data revenue jumped 46%, to $372-million. Year-to-date, wireless data revenue has increased 42% to $982-million.

Rogers Wireless posted overall revenue of $1.76-billion, a slight 2% increase on the third quarter of 2008 as gross and net new prepaid and postpaid subscriber additions declined 21% and 29% respectively. Blended average monthly revenue per user also slipped, to $66.45 from $67.30.

The company activated more than 370,000 smartphone devices, including iPhone, BlackBerry and Android devices, accounting for 28% of the total postpaid subscriber base. This is almost double the percentage of smartphone subscribers in the third quarter last year.

Equipment sales, however, were down as the number of existing customers upgrading to the iPhone decreased significantly year-over-year.

Total operating profit for Rogers Wireless increased 20% to $838-million.

Rogers Cable, meanwhile, saw a 7% advance in its core cable, Internet and home phone revenue to $773-million, but its business and retail segment revenues fell 4% and 10% respectively.

However, Rogers did see lower net additions of cable products, citing the economic recession in Ontario that has slowed down home construction.

Rogers Retail, in particular, saw its revenues fall due to the lower volume of iPhone upgrades relative to the same period in 2008, when the popular smartphone was first introduced. Retail also suffered ongoing declines in video rentals and sales.

Rogers Business Solutions, which provides various services to businesses, saw a 36% drop in operating profit to $7-million from $11-million. The company blames this on the lower revenue, increases in low-margin long-distance revenue, and operating costs that have not declined in proportion to revenue.

Rogers Media, which refers to its radio and television products as well as Rogers Sports Entertainment (the Blue Jays baseball club and Rogers Centre) posted a 6% drop in revenue to $364-million.

Rogers cited ongoing advertising pressures in the broadcast market. The media segment also took a hit of $12-million after terminating the contract of former Blue Jays closer B.J. Ryan earlier this year.

Media operating profit plummeted 57% to $23-million from $54-million

Phillip Huang, analyst with UBS Securities, maintains a "buy" rating and $34 price target for Rogers, but said he expects consensus estimates to be raised citing better-than-expected postpaid ARPU of $76.79 (UBS forecasted $75.52) and wireless margins of 51.4% (UBS estimate 47.2%).

Financial Post