A Rogers Communications store in Toronto on June 3, 2012.Michelle Siu/The Globe and Mail
Rogers Communications Inc. reported Wednesday a third-quarter net profit of $466-million that declined 5 per cent from a year-ago.
The Toronto-based company's net earnings for its July-to-September quarter amounted to 90 cents per diluted share. That compares to a profit of $491-million, or 87 cents per share, during the same period last year.
On an adjusted basis, meanwhile, net income amounted to $495-million or 96 cents per share versus year-ago $489-million or 90 cents per share – surpassing analysts' expectations.
Revenue for the three-month period ended Sept. 30, 2012 increased by 1 per cent to $3.17-billion.
"While the competitive challenges and advertising market softness have not abated, we have strong execution which resulted in a further acceleration in the growth rates of both revenue and adjusted operating profits in our wireless and our cable segments, and also on a consolidated basis," president and chief executive officer Nadir Mohamed, said on a conference call with financial analysts.
"Consolidated margins, (adjusted) earnings per share and free cash flow were all up versus Q3 of last year."
During the third quarter, Rogers posted 48 per cent margins for both its cornerstone wireless and cable businesses despite sharper competition in both those markets during the key back-to-school season. Moreover, the impact of previously-announced cost-reductions, including at least 700 layoffs and reduced discretionary spending among other initiatives, appears to be taking hold.
As Canada's largest wireless carrier, with more than 9 million subscribers, Rogers' results are considered a bellwether for the health of the larger industry. Earlier this year, Rogers was experiencing a number of key problems in its wireless division, including a sequential slowdown in its wireless data growth rate – a trend that it now appears to have reversed.
Rogers recorded wireless data revenue growth of 18 per cent during the period as the company earned more money on wireless data roaming, while also coaxing consumers to switch to more costly mobile data plans – two areas that proved to be trouble spots earlier this year.
"In the quarter, we activated over 700,000 smartphones – the second highest number ever for Rogers – both for new subscribers and upgrades," Mr. Mohamed said.
Smartphone users now represent 65 per cent of Rogers' post-paid subscribers – lucrative customers who pay their wireless bills at the end of the month rather than prepaying for service.
That's key because smartphone users typically generate average monthly bills that are roughly twice the amount of customers who only use their cellphones to talk.
The company's average monthly revenue per user, or ARPU, for its post-paid customer base was $71.50, down 58 cents from the same period last year. But its blended monthly ARPU, which includes both post-paid and pre-paid customers, increased by 13 cents to $61.92.
Additionally, Rogers reported that fewer high-end wireless users are choosing to leave the company, as its post-paid monthly churn rate dipped by 0.02 per cent to 1.34 per cent on a year-over-year basis.
"Wireless improvement continues," Drew McReynolds, an analyst with RBC Dominion Securities Inc., wrote in a note to clients. Specifically, he noted that wireless margins remained "solid," in addition to improved post-paid churn.
Still, the Rogers recorded increased costs for wireless equipment for the quarter as more and more customers opted for smartphones, including the new iPhone 5. Retention spending, which includes costly subsidies on device upgrades, also crept higher at $214 million as more and more customers flocked to the priciest smartphones.
"During the three months ended September 30, 2012, we activated and upgraded 71 per cent more iPhones and 16 per cent more smartphones overall than in the same period last year," the company said in its release.
During the conference call, though, analysts noted that Roger's third-quarter results only reflected the impact of less than 10 days of iPhone 5 sales following that device's launch on Sept. 21. As a result, the real test of Rogers' wireless margin strength will only come during the fourth-quarter, which includes the key holiday shopping season.
"Given the shortness of the time from Sept. 21 to the end of the quarter, you know, iPhones and other smartphones were more dominant in the quarter. And we expect that Q4 will be characterized by a much higher iPhone mix," said Rob Bruce, head of Rogers' communications division.
Mr. Bruce said the company's reservation system is registering growing demand for the iPhone 5, but downplayed worries that shortages of the device could persist during the fourth-quarter.
"At this point predictably, we could probably use more devices than we have. We're anxious to have more," he said. "But like most terrific devices, we're in short supply right now and I know that over time that will ramp up."