The way we communicate and consume content is rapidly evolving, with communications and media shifting toward a wireless and digital world. That fundamental shift was on full display when Rogers Communications (RCI 1.43%) reported its fourth-quarter results on Tuesday. The Canadian media and communications giant saw solid growth in its wireless division, but that growth was somewhat overshadowed by weakness in its legacy cable and media properties.
Rogers Communications results: The raw numbers
|
Q4 2015 Actuals |
Q4 2014 Actuals |
Growth (YOY) | |
|---|---|---|---|
|
Revenue |
$3.45 billion |
$3.36 billion |
3% |
|
Adjusted Operating Profit |
$1.23 billion |
$1.23 billion |
-1% |
|
Adjusted EPS |
$0.64 |
$0.69 |
-7% |
Data source: Rogers Communications.
What happened with Rogers this quarter?
Rogers' wireless division couldn't overcome weakness in its legacy businesses.
- The key wireless segment delivered a very strong quarter with revenue up 4% year over year and adjusted operating profit following suit, up 4% as well. That growth in profit is especially noteworthy after the wireless segment's profitability was muted earlier in 2015 due to heavy investments in smartphone subsidies to retain and grow its subscriber base.
- Revenue in the cable division fell by 2% and its adjusted opening profit fell 4% due to weakness in Rogers' legacy television and phone segments, where revenue declined 7% and 14%, respectively. This offset strong growth in its Internet division, where revenue was up 10%.
- Revenue in the media segment increased 3% year over year, led by higher Toronto Blue Jays revenue and strong subscription and advertising revenue at its Sportsnet properties. However, operating profit fell 8% due to softness in its legacy broadcast TV and print advertising businesses.
- The business solutions segment was also weak, with operating revenue down 2% while adjusted operating profit fell 12%. This was after 4% growth in next-generation revenue couldn't offset a 17% decline in legacy revenue.
- Cash flow generation was solid, with the company delivering $274 million in free cash flow.
What management had to say
As CEO Guy Laurence noted in the earnings release, "Rogers delivered steady results in a fiercely competitive quarter, including strong results in Wireless and Internet, where we maintained momentum in subscriber and financial metrics... Whilst we are making good progress, we aren't resting on our laurels, and we recognize there is more work to do."
Among the areas the company is addressing first is the softness in its legacy media properties. Rogers announced earlier this week that it was cutting 200 jobs in its media division, which equates to about 4% of that division's workforce, to rightsize it amid a slumping advertising market. Prior to this quarter, its media division had been a real profit driver, due in part to the company's investments in live sports content such as its NHL licensing deal and its investments to bring the Toronto Blue Jays back to being competitive. Those investments are largely being made because live sports programming has proven to be more immune to advertising weakness, with it being one of the few content sources that can still capture the attention of consumers, enabling Rogers to charge premium ad rates on its Sportsnet properties.
Because Rogers' media segment controls content that advertisers are still willing to pay a premium for, it still has a bright future at the company. The same can't be said for the media assets owned by rival Shaw Communications (SJR). Faced with the same legacy pressures, the latter recently unloaded its media unit in a $1.9 billion deal, choosing instead to get into the wireless business, which it's doing via the recent announcement that it was acquiring WIND Mobile. In a sense, Shaw Communications is swapping the old (media division) for the new (wireless).
Looking forward
Despite continued pressure on its legacy businesses, Rogers sees steady growth ahead in 2016. The company expects its operating revenue, adjusted operating profit, and free cash flow to all grow by 1% to 3% in the year ahead. The wireless division is expected to do most of the heavy lifting. However, Rogers also plans to strengthen its cable proposition with faster Internet speeds and more programming in 4K TV as well as delivering strong sports content via its media division.
