Quebecor Earnings: Media Weakness Blunts Solid Telecom Results, but Freedom Plans Are Most Critical

Quebecor’s QBR.B performance accelerated across its telecom business in the first quarter, but overall results were held back by rising media costs. With over 80% of the firm’s sales and all its profits attributable to telecom, the underlying trends were very encouraging. However, with the acquisition of Freedom Mobile at the beginning of the second quarter, prospective telecom performance will ride on much more than the narrower business that drove first-quarter results. We are maintaining our CAD 35 fair value estimate until we learn more specifics about the Freedom customer base and financial profile that Quebecor acquired. We will get insight into these components and the initial performance with next quarter’s results.

Total revenue was up 2.5% year over year, the best quarter since 2021, despite collective revenue from the media and sports segments being roughly flat. Despite telecom margin expansion, the consolidated adjusted EBITDA margin contracted nearly a full percentage point from last year’s first quarter. Rising media content costs accounted for all the contraction.

Telecom services revenue was up 3.7% year over year, the best quarterly growth in several years. The two declining telecom businesses—wireline phone and television—led to the improvement, as price increases more than offset continuing subscriber losses. More importantly, the firm posted solid customer additions for its broadband and mobile phone services, adding 9,000 and 26,000 customers, respectively. While we believe Quebecor has roughly saturated the Quebec market for those two services, revenue continues to trend up with the modestly growing subscriber bases and generally stable average revenue per user (ARPU). Internet revenue was up 5.4% year over year, and mobile phone revenue was up 6.5%. The 30 basis points of telecom margin expansion compared with last year’s first quarter was attributable to lower equipment sales, which carry little to no profit.