Rogers Drops as Investors Weigh Higher Spending Against Growth

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Rogers Communications Inc. fell as much as 3.2% even after the telecommunications firm reported 14% growth in second-quarter revenue that met analysts’ projections. One analyst attributed its steepest decline since March 17 to potentially higher capital expenditures in the coming months.

  • National Bank Financial analyst Adam Shine said that company management’s comments during a conference call point to a drop in free cash flow and earnings before interest, taxes, depreciation and amortization in the third quarter due to higher taxes and capital spending.

Key Insights

  • Rogers said second-quarter revenue rose 14% to C$3.58 billion ($2.8 billion) compared with a year earlier, close to analysts’ average estimates of C$3.56 billion.
    • The result comes as governments across Canada have eased Covid-19 restrictions, with vaccinations accelerating. Rogers, as the country’s largest wireless company by subscribers, is more exposed to the loss of roaming revenue caused by travel restrictions.
  • The Toronto-based company added 99,000 postpaid wireless subscribers. Average revenue per user rose 7 Canadian cents to C$49.16 as a result of higher roaming revenue.
  • Rogers’ profitability met expectations. Adjusted diluted earnings were 76 cents per share, which was in line with the average analyst estimate.
  • “Our solid performance in the second quarter is a result of strong execution across each of our business units as the economy continues to recover from pandemic lockdowns,” Chief Executive Officer Joe Natale said in the release.
  • Natale said during a conference call with analysts that the company is still on track to complete its acquisition of Shaw Communications Inc. by the first half of 2022.
  • “The stock has outperformed its peers since the end of the 1Q reporting season, which we believe was due to the reopening trade,” Desjardins analyst Jerome Dubreuil wrote in a July 12 note to investors.
  • The report comes as the federal government nears an announcement on the results of the 3,500 MHz spectrum auction on July 23. It was previously reported that Canada raised about C$8 billion, a “shockingly high” figure according to one analyst.

Market Reaction

  • Rogers shares were up 13% this year as of Tuesday’s close, slightly behind the 14.4% gain of the S&P/TSX Composite Index. They were down 3.1% to C$64.91 at 2:41 p.m. in Toronto.

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