Leading Canadian telephone operator BCE Inc. BCE reported strong financial results in the fourth quarter of 2015, with both the top and the bottom line surpassing the Zacks Consensus Estimate.

Quarterly net income was approximately $371.6 million, down 8.5% year over year. GAAP earnings per share were 43 cents, down 9.4% year over year. However, adjusted net income per ADS (American Depository Share) came in at 53 cents, above the Zacks Consensus Estimate of 51 cents.

Total revenue was approximately $4,198 million, up 1.4% year over year and ahead of the Zacks Consensus Estimate of $3,953 million. Adjusted EBITDA (earnings before interest, tax, depreciation and amortization) was $1,553.1 million, up 2.5% year over year. Quarterly adjusted EBITDA margin stood at 37% versus 36.6% in the prior-year quarter.

Cash Flow

During the fourth quarter of 2015, BCE generated approximately $1,131.3 million of cash from operations, down 1.1% year over year. Free cash flow in the reported quarter was around $686.3 million, up 10% year over year.

Segments in Detail

Bell Wireless: Revenues from Bell Wireless increased 5.9% year over year on the back of higher service revenues, strong data revenue growth and increased product revenues.

Services revenues climbed 6.3% to $1,189.7 million on higher postpaid mix and a 23% increase in data revenue that drove robust growth in blended ARPU. Meanwhile, product revenues increased 2.4% to $128.1 million, reflecting higher number of postpaid gross additions and customer upgrades.

Blended ARPU improved 4.4% year over year to $47.70 on increased data usage on the LTE network, higher percentage of customers on 2-year contracts and a greater mix of postpaid customers in the total subscriber base. Postpaid customer churn was 1.38% against 1.29% in the year-ago quarter.

During the reported quarter, BCE added a net of 91,308 postpaid wireless subscribers compared with 118,120 in the prior-year quarter. As of Dec 31, 2015, the company had 7,375,416 postpaid subscribers, up 3.7% year over year. The total wireless subscriber base increased 1.6% to 8,245,831. At fourth-quarter end, 78% of the total postpaid wireless customers used smartphones compared with 76% at the end of the year-earlier quarter.

Bell Wireline: Revenues from Bell Wireline dropped 1.5% year over year to approximately $2,368.2 million. Wireline data revenues were up 1.6% to $1,395.0 million. Local and access revenues declined 4.3% to $600.9 million. Long distance revenues were down 12.8% to $152.8 million.

Network access services (NAS) lines fell 6.2% year over year to 6,688,666, at the end of 2015. The decline was primarily due to competition from cable operators, business customer conversion from voice lines to IP-based services, and customer shift to high-speed Internet from conventional technologies. Residential NAS losses during the reported quarter were 58,081 compared with 57,232 in the year-ago quarter. Business NAS losses widened to 48,829 from 35,773 a year ago.

As of Dec 31, 2015, BCE had 2,738,496 TV subscribers, up 3.6% (including 1,182,791 Fibe TV customers, an increase of 26.7%) and 3,413,147 high-speed Internet subscribers, up 3.5% year over year. In the fourth quarter, Bell Wireline added a net of 38,908 high-speed Internet customers and 74,092 Fibe TV customers, but lost 36,306 satellite TV subscribers.

Bell Media: Bell Media generated revenues of approximately $611.3 million, up 3.4% year over year on higher advertising and subscriber revenues.

Dividend Hike

BCE declared a 5% increase in its quarterly cash dividend on common stock to 68.25 cents per share from 65 cents paid earlier. The dividend will be paid on Apr 15, 2016, to shareholders of record as of Mar 15, 2016.

Guidance

BCE has announced its financial guidance for full-year 2016. The company expects adjusted earnings per share of C$3.45–C$3.55 while free cash flow growth is likely to be around 4–12%. Annual dividend per share is projected at C$2.73, reflecting a dividend pay-out policy of 65–75%. Revenue growth for BCE is expected at around 1–3%, while EBITDA growth is estimated at roughly 2–4%. Capital intensity projection for BCE is pegged at approximately 17%.

Zacks Rank & Stocks to Consider

BCE currently carries a Zacks Rank #3 (Hold). Better-ranked stocks in the same sector are Sprint Corporation S, Windstream Holdings, Inc. WIN and United States Cellular Corporation USM. All the three stocks hold a Zacks Rank #2 (Buy).

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