Strong Wireless Growth Continues to Drive Rogers Communications Inc.

Rogers Communications' (RCI +0.00%) wireless division was once again the star of its quarterly results. Revenue in the segment jumped 5% while adjusted operating profit rose 9%, due in part to achieving the best subscriber metrics in eight years. That strong showing, when combined with the Canadian telecom giant's solid performance earlier this year, led the company to boost its full-year guidance.

Rogers Communications results: The raw numbers

Note: All figures in Canadian dollars.

Data source: Rogers Communications.

Image source: Getty Images.

What happened with Rogers this quarter?

Rogers' wireless division led the way.

• Revenue in the wireless segment increased 5% to $2.1 billion, led by a 7% improvement in service revenue. One of the drivers was 129,000 net post-paid subscriber additions during the quarter, which was the highest rate in eight years. Meanwhile, adjusted operating profit in the segment rose 9% to $964 million thanks in part to a 10-basis-point improvement in its customer churn rate, which was at its lowest third-quarter level in eight years. These factors helped boost margins in the segment by 80 basis points.
• The cable segment also delivered a solid quarter. Revenue was up 1% to $870 million, driven by a 6% increase in internet revenue, led by 27,000 net additions to the subscriber base. Meanwhile, adjusted operating profit rose 2% to $440 million thanks to the internet additions and an 80-basis-point improvement in margins. That said, the company does continue to experience cord-cutting in its television group, which lost a net 18,000 subscribers last quarter, pulling TV revenue down 3% versus the year-ago quarter.
• Revenue in Rogers' business solutions segment rose 2% to $97 million while adjusted operating profit was up 6% due to an increase in higher-margin, next-generation service revenue.
• Media segment revenue slipped 3% to $516 million because it didn't benefit from the World Cup of Hockey this year. That factor, along with higher payroll expenses at the Toronto Blue Jays, pushed media's adjusted operating profit down 18% versus last year.
• Overall, Rogers' adjusted operating profit increased 6% to $1.46 billion while adjusted net income jumped 22%, thanks to the higher adjusted operating profit and lower depreciation and amortization expenses during the quarter. Finally, free cash flow was $538 million, down 10% due to increased capital spending, though it was more than enough to cover the $247 million in dividends paid this quarter.

What management had to say

CEO Joe Natale commented:

Our third quarter results reflect continued momentum with strong top-line growth and flow-through to adjusted operating profit. Our team delivered on all key operating and financial metrics in our largest segment, Wireless. We significantly grew subscribers, revenue, adjusted operating profit, and margins. We are pleased with our postpaid churn result. In a highly competitive quarter, Cable financials were strong thanks to our Internet competitive speed advantage. We continue to focus our efforts to drive customer service and margin improvements.

The continued improvement in the wireless customer churn rate, which are customers who dropped service, is worth noting. That's exactly what Rogers expected when it brought Natale on board since his former employer, Telus, routinely had the lowest churn rate in the industry. He has already started transferring what worked at Telus to quickly drop Rogers' churn rate, which is having a noticeable impact on profitability.

Looking forward

Because of that positive impact, Rogers expects adjusted operating profit to rise 5% to 6% this year, which is an improvement from the previous guidance that it would increase 2% to 4%. However, the company plans to reinvest that incremental profit to further improve the quality of its networks by boosting capital expenditures. As a result, free cash flow guidance remains unchanged, with the company anticipating that it will rise 2% to 4%, which will cover the dividend with plenty of room to spare.