This Communications Company Dials up a Flat Quarter
Matthew is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Diversified Canadian communication and media company Rogers (NYSE: RCI) reported earnings last week, and I bet you didn’t even notice. In fact, I bet you don’t know much about the company--that’s if you’ve even heard about them at all. That’s understandable; their diversified business model isn’t growing profits fast enough to get much media attention. On the bright side, they are reconnecting a lot of cash back to shareholders as they increased their dividend and buyback by a combined 186%
Rogers is a great blend of Verizon (NYSE: VZ), Comcast (NASDAQ: CMCSA), Madison Square Garden (NASDAQ: MSG) and Liberty Media (NASDAQ: STRZA). They operate three business platforms: Wireless, Cable and Media. The businesses fit together quite well and have enabled the company to grow revenue by 6.7% per year for the past five years, which has really dropped to the bottom line as they’ve delivered earnings growth of 31% per year for the past five years.
While they didn’t grow quite as fast in their most recent quarter, it was still another solid period for the company. Their revenue was flat for the second quarter, but they did grow earnings per share by 3% year-over-year and boosted their cash flow by 16% to $656 million. They’ve found a great place to use that cash, as they returned $557 million of that to shareholders via dividends and share buybacks. Those consistent returns come thanks to their diversified operating model.
The Verizon part of their model, Rogers Wireless, provides about 57% of their revenue and 63% of their profits, thanks to their 9.3 million subscribers. The business is basically flat year-over-year on the revenue side, while adjusted profits grew 5% year-over-year. It’s a cash cow, producing adjusted operating margins of 45%.
Coming in at 30% of their consolidated revenue and 33% of profits, is the Comcast part of their model. Like Comcast, Rogers Cable offers the triple play to their 2.3 million basic cable subscribers. Also similar to Comcast’s NBC Universal unit, Rogers owns content providers in their Media division, which we’ll get to in a moment. For the quarter, Rogers Cable had flat revenue while adjusted profits grew by 2%. The one soft spot was their Rogers Business Solutions, which saw revenue decline by 10%, though profits did grow by 5%.
Rogers Media is my personal favorite division within the company; it is part Madison Square Garden, part Liberty Media and, as already alluded to, part Comcast. Tucked into the final 13% of their revenue is a business that owns TV networks, regional sports channels and radio stations, among other assets. Tucked into those other assets, which represent 10% of the revenue of the Media division, you can find the Toronto Blue Jays and the Rogers Center where the Jays play. While I could say a lot about this gem, I’ll spare you for now (though in the earnings report they did point out that they saw strong growth in baseball tickets and merchandising as the team is starting to excite fans again). Overall, the division grew revenue by 1% while profits slipped 13%. They had strong growth in sports broadcasting and entertainment but saw continued softness in the ad market.
Overall the quarter wasn’t really exciting. They are working on a lot of different avenues to restart the growth engine. They’ve been working on several bolt-on type acquisitions including an interest in the Maple Leaf Sports and Entertainment Company, which owns the Maple Leafs, Raptors and the Air Canada Center, along with several regional sports networks, as well as some TV stations as they build out the Citytv platform nationwide. They’re also working on a mobile payments solution and continuing to roll out Canada’s first and largest Long Term Evolution (LTE) 4G broadband wireless networks. I like what Rogers is doing and think that long term investors should take a good look at this diversified communication and media company from our neighbors to the north.
While their earnings report might not have seemed too exciting on the surface, investors have seen enough from the company to send shares up from a low of $34 in late May all the way to nearly $40. That’s quite a run, though the company is virtually flat over the past few years. A month ago I recommended writing an October $30 put Rogers for my virtual “No Drip, No Mess” Portfolio, and those puts look to be on pace to expire worthless. I’d love to eventually pick up shares of this solid company and might have to move up the strike price to $35 in order to get shares. While the company is cheap at just 14.5 times earnings, I’d like to keep trying to get it cheaper (or at least earn income while trying).
latimerburned owns shares of Verizon Communications and Rogers Communications (USA). The Motley Fool owns shares of Madison Square Garden. Motley Fool newsletter services recommend Rogers Communications (USA). Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.