350 Bloor St. East, a 50-year-old building in Toronto owned by Rogers Communications Inc., on June 4. Rogers is is looking to sell nearly $1-billion in real estate to help reduce debt but is having a hard time securing deals.Abhijit Alka Anil/The Globe and Mail
Rogers Communications Inc.’s RCI-B-T second-quarter profit more than tripled compared with 2023, the wireless giant reported Tuesday, as the company benefited from lower costs related to its $20-billion acquisition of Shaw Communications.
However, revenue was flat as cable-division revenue slipped, and Rogers must now confront the challenge of reducing its nearly $44-billion debt load, much of that having been borrowed in recent years to finance the Shaw transaction. The company is looking to sell nearly $1-billion in real estate to help reduce debt but is having a hard time securing deals.
Profit totalled $394-million for the second quarter, up from $109-million during the same period last year. Rogers’s acquisition of Shaw, which closed on April 3 of last year, has been weighing down the company’s net earnings in recent quarters because of the hundreds of millions of dollars in costs related to the transaction.
But those costs have fallen dramatically, to just $24-million in the second quarter from $188-million a year ago. Total restructuring and acquisition-related costs were $90-million during Rogers’s latest quarter, representing a 73-per-cent decline from the same time last year.
On an adjusted basis, Rogers reported second-quarter earnings of $623-million or $1.16 per diluted share, up from earnings of $544-million or $1.02 per diluted share.
Revenue of about $5.09-billion in the first quarter was up slightly from $5.05-billion a year earlier. The company’s cable business, which includes TV and internet service, reported about $1.96-billion of revenue, down about 2 per cent from a year earlier.
That decline caught some analysts’ attention. “While we did not expect cable revenues to show a positive growth number in Q2, it will be important for the company to turn this metric to positive by the end of the year,” Bank of Nova Scotia analyst Maher Yaghi said in a note to clients.
While the company’s net debt has fallen slightly on a year-over-year basis, to $43.8-billion in the second quarter from $44.3-billion one year prior, its debt-leverage ratio has fallen much faster because of rising operating income. Debt-leverage ratios are a key indicator of a company’s ability to repay its lenders as they compare total debt with annual operating income.
As of June 30, Rogers had a debt-leverage ratio of 4.7, meaning it currently holds the equivalent of 4.7 times its annual operating income in debt. Rogers ended its second quarter of 2023 with a debt-leverage ratio of 6.2.
Glenn Brandt, the company’s chief financial officer, said Rogers was on track to reduce that ratio further to 4.2 by the end of this year. Rogers is hoping to reduce its debt-leverage ratio even further, to 3.5 times annual operating income, by April, 2026.
Yet at least part of that plan hinges on selling $1-billion worth of real estate, including several of its Canadian data centres. Mr. Brandt said in April the process was taking longer than expected and he repeated that on Tuesday.
Rogers managed to sell its entire stake in Cogeco Inc. and subsidiary Cogeco Communications Inc. CCA-T to the Caisse de dépôt et placement du Québec last December for $829-million, which Mr. Brandt said at least temporarily reduced the urgency for asset sales.
“That bought us some time and allowed us some leeway to not fire sale our real estate,” he said. “We are still focused on driving those sales, though.”
Buyer appetite for commercial real estate remains weak. Earlier this month, two major Canadian pension funds and Brookfield Asset Management tried for the second time in as many years to sell a downtown Toronto office tower that has thus far failed to attract an acceptable price.
Mr. Brandt sought to play down the importance of asset sales to the company’s debt-repayment plans on Tuesday, referring to earnings growth and free cash flow as “key drivers” of its ability to pay lenders. Rogers expects to generate roughly $3-billion in free cash flow over the course of 2024, he said, with approximately $700-million of that needed for dividends and another $500-million spent acquiring wireless spectrum earlier this year, “but the rest we will use to pay down debt.”
“We’ve got time,” Mr. Brandt said, “we are certainly not in a fire sale.”
But Rogers’s debt carries significant continuing costs. The company paid more than $1-billion in interest on its debt over the first six months of 2024, or 33 per cent more than the $766-million in net interest payments Rogers made during the first half of 2023.
Meanwhile, Rogers is facing elevated competition for wireless customers, who generally represent a key driver of earnings growth. The company added 112,000 net postpaid mobile-phone subscribers during the second quarter, down 34 per cent from 170,000 net additions recorded in the second quarter of 2023.
At the same time, more Rogers wireless customers are cancelling the service or switching providers. The company’s monthly churn, which tracks how many existing mobile-phone subscribers cancelled their plans, averaged 1.07 per cent in the second quarter, up from 0.87 per cent during the same period last year.