BUSINESS

Cogeco Cable reports smaller Q4 profit, blames impact of tax changes

11/02/2012 02:31 EDT | Updated 01/01/2013 05:12 EST
Cogeco Cable Inc. (TSX:CCA) says its profits weakened in the fourth quarter as it was affected by an increase in corporate taxes in Ontario and higher depreciation.

The Montreal-based company, which operates a cable and telecom system that spans southern Ontario and Quebec, said late Thursday that its profits were $45.7 million, or 93 cents a share.

That was down from $69 million, or $1.42 a share, a year earlier.

Adjusted earnings were 94 cents per share, missing analyst expectations for earnings of $1.09 per share, according to a poll of analysts by Thomson Reuters.

Revenue increased 6.2 per cent to $324.8 million, compared with $305.8 million a year ago.

"This is a very competitive market," said president and chief executive Louis Audet in the company's earnings call.

"All competitors are offering attractive promotions. We for one have been increasingly selective about the credit conditions of the new customers that we take on.

"Everyone has to work very hard to keep their customers," he added.

The company attributed the lower profits to changes in the corporate income tax rate in Ontario and to a reduction of the depreciation period of certain property, plant and equipment.

In July, Cogeco Cable Inc. gave itself a toehold in the U.S. market with a US$1.36-billion deal to buy a regional cable company, the first big acquisition for Canada's fourth-largest cable TV company since its failed venture into Portugal.

The deal saw Cogeco purchase independent cable system operator Atlantic Broadband for US$1.36 billion.

Cogeco Cable is maintaining its financial guidelines issued in July, but plans to issue revisions once the acquisition of Atlantic Broadband is complete.

"We maintain our view that Cogeco Cable would have been better served by returning its cash flows to investors through material dividend growth rather than making a foray into new markets," said Desjardins analyst Maher Yaghi in a note.

"We continue to believe that the market will likely discount Cogeco Cable’s stock until the company has demonstrated at least a few quarters of positive results including Atlantic Broadband, particularly given the debacle of the Cabovisao acquisition in Portugal."

Meanwhile, parent company Cogeco Inc. (TSX:CGO) recorded a profit of $44.9 million, or 83 cents a share, compared with $70.1 million, or $1.39 a share, in the year-ago period.

Revenue was $356.7 million, up 7.7 per cent from $331 million a year ago.

Cogeco Cable shares were down eight cents to $37.52 while Cogeco Inc. shares fell 20 cents to $33.16.