BCE Beats, Outlook Favorable

BCE Inc (BCE: 26.79 +0.40 +1.52%), Canada’s largest telephone operator, announced results for fourth-quarter 2009 with adjusted (excluding restructuring and special items) earnings per share of 51 Canadian cents (48 US cents per ADS), beating the Zacks Consensus Estimate of 49 Canadian cents (46 US cents per ADS). However, adjusted earnings fell 7.3% year-over-year.

For full-year 2009, adjusted earnings per share were C$2.50 (US$2.19), also above the Zacks Consensus Estimate of C$2.35 (US$2.06).

Reported net income for the quarter was C$350 million (US$331 million) or 46 Canadian cents per share (43 US cents per ADS) compared to a net loss of C$48 million (US$40 million) or 6 Canadian cents per share (5 US cents per ADS) reported in the prior-year quarter. In the year-ago quarter, BCE registered a loss on investments of C$372 million (US$307 million) related to write-downs on non-core investments.

Consolidated revenue for the quarter was C$4.65 billion (US$4.05 billion), up 3.9% year-over-year, as increased revenue from Bell Canada was partly offset by the decline at Bell Aliant. Revenue for full-year 2009 increased 0.4% to C$17.74 billion (US$15.63 billion). EBITDA for the quarter declined 0.2% year-over-year to C$1.74 billion (US$1.64 billion) as growth at Bell Canada was more than offset by the decline at Bell Aliant.

Results by Segment

Bell Wireless

The segment reported 5.7% year-over-year growth in revenues that reached C$1.2 billion (US$1.13 billion) driven by higher wireless data revenue (up 32%) and 43% increase in product sales due to the acquisition of the remaining 50% stake in Virgin Mobile Canada and the acquisition of leading Canadian retail chain “The Source.” However, this was partly offset by a year-over-year decline in blended ARPU that registered C$51.08 (US$48). ARPU was impacted by decline in voice usage due to a weak economy and lower roaming revenue.

Total net subscriber additions improved 39.3% year-over-year to 163,000 customers, bringing the wireless customer base to 6.83 million (up 5.2%). Net additions increased year-over-year across postpaid (up 37.5%) and prepaid (up 43.2%) were boosted by new high-end smartphone offerings.

Bell Canada completed the commercial launch of the much anticipated HSPA+ technology-based 3G wireless network in November 2009 that offers peak downlink speeds of up to 21 megabits per second (Mbps). Bell has collaborated with its Canadian peer Telus Corp (TU: 29.38 +0.25 +0.86%) for sharing the expenditures related to this network upgrade, which has increased network efficiency and enhanced Bell’s wireless voice and data service deployments.

Leveraging the new 3G HSPA+ network Bell Canada has launched the iPhone (3G and 3GS) and Research In Motion’s (RIMM: 67.75 +1.58 +2.39%) Blackberry Bold in Canada, which have expanded the opportunities in wireless data. Launch of the iPhone by Bell Canada as well as Telus officially ended the monopoly of Rogers Communications (RCI: 30.95 +0.12 +0.39%) over distributing the popular handset in Canada.

Bell Wireline

The segment posted a 4.2% year-over-year increase in revenue to C$2.84 billion (US$2.7 billion) as growth in product sales driven by the acquisition of The Source and higher video revenue were offset by losses in local and access (down 6.1%), long distance (down 5%) and data (down 3.8%) revenues. Lower local and access and long distance revenues were due to persistent erosion in network access services (NAS) customer base.

Total NAS lines declined by 108,000 lines in the quarter compared to a net loss of 101,000 lines reported a year-ago, bringing the NAS customer base to roughly 6.86 million lines. Residential NAS declined by 79,000 lines while business NAS declined by 29,000 lines.

High-speed Internet connections grew by 8,000 lines to reach a total of roughly 2.06 million customers. The company will increase investment in broadband in 2010 to facilitate the deployment of fiber-to-the-home (FTTH) network in Québec City (the largest Canadian urban market), which promises to offer downlink speeds of at least 100 Mbps. Moreover, Bell’s new Fibre Internet service (offering peak download speeds of 25 Mbps) is now available in Montreal and the Greater Toronto Area.

Video subscriber base reached 1.95 million with 41,000 connections added in the quarter. Leveraging the ongoing advanced fiber-to-the-node (FTTN) broadband network deployments, BCE plans to launch IPTV (Internet TV) service in Toronto and Montreal in 2010, which will strengthen its competitive position in these key markets and complement the existing TV franchise.

Bell Aliant

Revenue from this segment decreased 2.6% year-over-year to C$785 million (US$743 million), largely due to a persistent decline in local and access businesses and long-distance revenues.

Dividend & Share Repurchases

BCE remains attractive for income-oriented investors based on healthy dividend yield and continued share repurchase initiatives. The company increased its annual dividend by 7% year-over-year in December 2009 and declared a fourth quarter dividend of $0.435 per share payable on April 15, 2010, to shareholders of record as on March 15, 2010. BCE is committed to a dividend policy with a target dividend payout of 65% of adjusted earnings per share in 2010. Moreover, BCE has announced that it will repurchase shares worth C$500 million (US$472 million) through 2010.

Outlook

The company has released its financial forecasts for 2010 with expectations for improved performance in wireless driven by the newly launched HSPA network. At Bell Canada, revenue and EBITDA are expected to grow by 1%-2% and 2%-4%, respectively, and capital intensity is forecasted at less than or equal to 16% of total revenue.

Consolidated free cash flow for 2010 is projected between C$2,000 million and C$2,200 million (US$1,887 million and US$2,075 million). The company expects an adjusted EPS of C$2.65 to C$2.75 (US$2.50 to US$2.59) for the year.