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BCE Q3 Earnings Miss, Revenues Beat on Segment Strength

Zacks Equity Research

BCE Inc. BCE reported mixed third-quarter 2019 financial results, wherein the top line surpassed the Zacks Consensus Estimate but the bottom line missed the same. Following the results, its share price declined 0.48% in yesterday’s trading session to eventually close at $47.45.

Net Earnings

Quarterly net earnings increased 6.5% year over year to C$867 million ($656.6 million) or C$0.96 (73 cents) per share. This was driven by strong growth in adjusted EBITDA, higher other income, and lower severance, acquisition and other costs. However, the momentum was partly offset by higher income tax, increased depreciation and amortization expense, and higher finance costs.

Adjusted net earnings came in at C$820 million ($621 million) or C$0.91 (69 cents) per share compared with C$861 million or C$0.96 per share in the prior-year quarter. The decline was attributable to uncertain tax positions that were favorably resolved in the year-earlier quarter resulting in lower income tax last year. The bottom line missed the Zacks Consensus Estimate by a penny.

BCE, Inc. Price, Consensus and EPS Surprise

BCE, Inc. Price, Consensus and EPS Surprise

BCE, Inc. price-consensus-eps-surprise-chart | BCE, Inc. Quote

Revenues

The Canadian telecommunications company’s quarterly total operating revenues increased 1.8% year over year to C$5,984 million ($4,532.1 million), reflecting growth at all Bell operating segments. Service revenues grew 1.3% to C$5,185 million on strong wireless, Internet and IPTV subscriber base growth. Product revenues were up 5.1% to C$799 million, as a result of greater volumes of higher-value smartphones and wireless rate plans in the sales mix. The top line surpassed the consensus estimate of $4,511 million.

Segment Results

Operating revenues at Bell Wireless increased 3.5% year over year to C$2,348 million ($1,778.3 million). Service revenues improved 2.5% to C$1,673 million, driven by strong subscriber base growth and higher revenue contribution from prepaid services. Product revenues increased 6% to C$675 million due to higher sales mix of premium smartphones and higher-value rate plans.

Operating revenues at Bell Wireline increased 0.2% year over year to C$3,066 million ($2,322.1 million) driven by higher Internet and IPTV revenues, and growth in business IP broadband connectivity and service solutions. However, the momentum was moderated by decline in legacy voice revenues, the impact of acquisition and retention discounts on residential service bundles to match aggressive competitor promotions, decline in low-margin data equipment sales to large business enterprise customers, and the lapping of the Axia NetMedia acquisition during the reported quarter. Service revenues were up 0.2% to C$2,941 million, while product revenues remained almost flat year over year at C$125 million.

Bell Media generated revenues of C$751 million ($568.8 million), up 2.7% year over year, driven by higher revenues from Crave subscriber base growth over the prior year. Advertising revenues were down due to the non-recurrence of revenues generated in the year-earlier quarter from the FIFA World Cup Soccer broadcast.

Other Details

Adjusted EBITDA was C$2,594 million, up 5.6%, driven by year-over-year increase of 7.9% at Bell Wireless, 1.4% at Bell Wireline and 24.2% at Bell Media. Adjusted EBITDA margin improved to 43.3% from 41.8%, reflecting the high flow-through of service revenue growth, increasing broadband Internet scale, disciplined spending on wireless postpaid subscriber acquisitions and 0.9% reduction in total operating costs, which included the favorable impact of IFRS 16.

Cash Flow & Liquidity

During third-quarter 2019, BCE generated C$2,258 million of cash from operating activities compared with C$2,043 million in the year-ago quarter. The increase was mainly due to adjusted EBITDA growth and lower income tax paid. Free cash flow for the same period was C$1,189 million compared with C$1,014 million in the prior-year quarter, driven by higher cash flows from operating activities (excluding acquisition and other costs paid).

As of Sep 30, 2019, the company had C$966 million ($729.5 million) in cash and equivalents with C$22,445 million ($16,950.1 million) of long-term debt.

2019 Outlook Reiterated

BCE has reiterated its financial targets for 2019 (as provided on Feb 7, 2019) in accordance with IFRS 16 accounting standards. The company continues to expect revenues to grow between 1% and 3%. While adjusted EBITDA is expected to rise 5-7%, adjusted EPS is expected between C$3.48 and C$3.58. Free cash flow is estimated to grow in the range of 7-12%.

Zacks Rank & Stocks to Consider

BCE currently has a Zacks Rank #3 (Hold). A few better-ranked stocks in the broader industry are TELUS Corporation TU, Telephone and Data Systems, Inc. TDS and Frontier Communications Corporation FTR, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

TELUS surpassed earnings estimates twice in the trailing four quarters, the average positive surprise being 1.4%.

Telephone and Data Systems surpassed earnings estimates twice in the trailing four quarters, the average positive surprise being 18.5%.

Frontier Communications surpassed earnings estimates thrice in the trailing four quarters, the average positive surprise being 115.8%.

Conversion rate used:

C$1 = $0.757364 (period average from Jul 1, 2019 to Sep 30, 2019)

C$1 = $0.755182 (as of Sep 30, 2019)


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