TORONTO — Rogers Communications Inc. (TSX:RCI.B) reported a surprisingly strong third-quarter Tuesday as the popularity of smartphones boosted revenue and profit at the company’s wireless division, offsetting declines at the media sector.
Overall revenue at the cable, Internet, wireless and media company edged up two per cent to $3.03 billion, in line with analyst estimates, compared with $2.98 billion last year but Rogers reported profit that far exceeded expectations.
The Toronto-based company said its net income was $485 million or 79 cents a share for the quarter ended Sept. 30, compared to year-earlier earnings of $495 million or 78 cents a share.
“Our third quarter results represent a healthy balance of growth, cost control and margin expansion, and double-digit increases in cash flow generation and cash returns to shareholders,” Nadir Mohamed, Rogers president and chief executive officer, said.
After adjustments, the company’s net income totalled $505 million or 82 cents a share, up from 73 cents a year earlier.
Analysts had expected adjusted profits of 54 cents per share.
Overall operating profit was up six per cent to $1.15 billion, from $1.08 billion a year ago.
The wireless division accounted for $846 million of adjusted operating profit, up 22 per cent from $693 million.
Mohamed said the most significant driver for good news on the wireless side was record high growth in wireless data revenues from smartphones like the Apple iPhone and BlackBerry products from Research in Motion (TSX:RIM). Data represented about 23 per cent of total wireless revenue.
“This represents the strong success of the smartphone investments we’ve made,” Mohamed said.
The company did, however, see a drop in its roaming and out-of-pocket services which it attributed to a weak economy and higher unemployment rates.
There were also fewer hardware upgrades to the amount of Apple’s iPhones purchased which led to slower wireless equipment sales for the quarter.
Next month will mark the end of the monopoly over the iPhone that Rogers held in Canada as the only carrier using the GSM wireless technology.
However, Rogers said it will continue trying to expand its data market, which in turn will lead to further expanding wireless revenues.
The company’s overall cable division showed a three per cent increase in adjusted operating profit, which rose to $329 million from $318 million a year ago, while media division’s adjusted operating profit fell to $36 million from $43 million.
Rogers said the declines in its media side were a result of a drop in ads and consumer discretionary spending, a trend which has spilled over from mid 2008.
However, the company said a pickup in sales from its shopping specialty channel is an encouraging sign for the future.
Operating revenue at Rogers Wireless rose by two per cent to $1.76 billion, while revenue from the cable division grew by three per cent to $989 million and media revenue fell by six per cent to $364 million from $386 million.
On the cable side, Rogers said increased competition and harsh economic conditions resulted in lower net additions of cable products this quarter compared to previous years.
The cable division has consequently implemented cost reduction and efficiency improvement initiatives to keep operating costs down.
However, Rogers said an increased demand for digital content, high-definition television and personal video recorder equipment led to growth in its digital cable subscriber base during the quarter.
“Overall we continue to be in a very strong position financially,” said chief financial officer Bill Linton.
Internally, a reorganization of the company’s top-level employees and an integration of marketing, sales and services divisions also contributed to streamlined operations that helped cut costs.
Linton said the company recorded $11 million in integration and restructuring expenses during the quarter, most of which went towards severance payments associated with the reorganization of the company’s communications group.
“We expect to record additional below-the-line integration and restructuring expenses in the fourth quarter this year,” Linton said.
While it currently is focusing on small business operations with its Rogers Business Solutions unit, part of the Cable division, Rogers said it is willing to discuss the potential of a partnership with Shaw Communications or any other corporation if it benefits customers and reduces capital.
In trading on th TSX, Rogers B stock closed at $30.46, up $1.56 or 5.4 per cent.