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BCE Inc. (BCE) Misses Earnings & Revenue Estimates in Q1

Leading Canadian telecom operator BCE Inc. BCE reported disappointing financial results in the first quarter of 2016, with both the top and bottom line lagging the respective Zacks Consensus Estimate.

This Zacks Rank #1 (Strong Buy) company competes with its peers Rogers Communications Inc. RCI, Shaw Communications Inc. SJR and TELUS Corp. TU in the highly competitive Canadian telecom market. 

Quarterly net income was approximately $542 million, up 32.9% year over year. GAAP earnings per ADS (American Depository Share) were 60 cents, up 30.2% year over year. However, adjusted net income per ADS came in at 62 cents, missing the Zacks Consensus Estimate of 65 cents.

Total revenue was approximately $3,841 million, up 0.6% year over year but well short of the Zacks Consensus Estimate of $4,442 million. Adjusted EBITDA (earnings before interest, tax, depreciation and amortization) was about $1,577 million, up 3.3% year over year. Quarterly adjusted EBITDA margin was 41% compared with 40% in the prior-year quarter.

Cash Flow

During the first quarter of 2016, BCE generated approximately $940.4 million of cash from operations, up 23.4% year over year. Free cash flow in the reported quarter was around $304.7 million, up 81% year over year.

Segments in Detail

Bell Wireless: Services revenues climbed 5.3% to $1,151 million while product revenues decreased 18.1% to approximately $76 million. Blended average revenue per user improved 3.6% year over year to $45.94. Postpaid customer churn was 1.15% against 1.18% in the year-ago quarter.

During the reported quarter, BCE added a net of 25,805 postpaid wireless subscribers compared with 35,373 in the prior-year quarter. As of Mar 31, 2016, the company had 7,401,221 postpaid subscribers, up 3.6% year over year. The total wireless subscriber base increased 1.6% to 8,235,963. At first-quarter end, 82% of the total postpaid wireless customers used smartphones compared with 77% at the end of the year-earlier quarter. The proportion of postpaid subscribers on LTE reached 73%, up from 52% a year earlier.

Bell Wireline: Revenues from Bell Wireline declined 1.5% year over year to approximately $2,174.6 million. Wireline data revenues were up 2.1% to $1,307.8 million. Local and access revenues declined 4.2% to $575.2 million. Long distance revenues were down 10.3% to $139.2 million.

Network access services (NAS) lines fell 6.4% year over year to 6,565,508, at the end of the reported quarter. Residential NAS losses during the reported quarter were 67,428 compared with 65,870 in the year-ago quarter. Business NAS losses narrowed to 40,204 from 44,069 a year ago.

As of Mar 31, 2016, BCE had 2,748,495 TV subscribers, up 3.4% (including 1,230,531 Fibe TV customers, an increase of 24.3%) and 3,411,246 high-speed Internet subscribers, up 3.4% year over year. In the first quarter, Bell Wireline added a net of 19,783 high-speed Internet customers and 47,740 Fibe TV customers, but lost 37,741 satellite TV subscribers.

Bell Media: Bell Media generated quarterly revenues of approximately $540.2 million, up 2.1% year over year.

Guidance

BCE issued its financial guidance for 2016. The company expects adjusted earnings per share of C$3.45–C$3.55 while free cash flow growth is likely to be around 4–12%. Annual dividend per share is projected at C$2.73, reflecting a dividend payout policy of 65–75%. Revenue growth is expected at around 1–3%, while EBITDA growth is estimated at roughly 2–4%. Capital intensity projection is pegged at approximately 17%.

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