The Canadian media sector took a direct hit on June 14 when BCE (CA:BCE) announced plans to eliminate 1,300 positions at the company. BCE is making the cuts due to its shrinking legacy phone business and ongoing losses at Bell Media.
While the news isn’t surprising given the ongoing job cuts happening across the industry — 17,000 job cuts have occurred in the U.S. media industry through the first six months of 2023 — it’s a reminder to investors that even dividend darlings such as BCE have to make tough choices about their businesses to continue sending investors those lovely quarterly checks.
It’s hard to know whether the move makes BCE stock a buy or a sell. It will undoubtedly save money by trimming its headcount. However, that might not be enough to keep longtime shareholders in the fold.
BCE shares are down 2.4% in the last 12 months. As for other Canadian stocks in the sector, Rogers Communication (CA:RCI.B) is up 0.8% while Telus (CA:T) is down almost 8%. Still, it’s BCE shareholders that are bagging the biggest yield, at 6.45%, as the Telus stock dividend pays 5.72% and RCI.B stock pays 3.42%, at current share price levels.
Fund managers don’t seem keen on any of these three, though BCE seems to be the least favorite. With a Fintel Fund Sentiment Score of 34.41, it lags Rogers’ 72.29 and Telus’ 53.60. Formerly known as the Ownership Accumulation Score, the metric finds the stocks that are being most bought by funds. The number ranges from 0 to 100, with higher numbers indicating a higher level of accumulation to its peers, and 50 being the average.
Deep Newsroom Cuts
CEO Mirko Bibic has made cuts — approximately 3% of its total workforce of 44,610 — from several areas of its business. However, many are at its Bell Media subsidiary, which will see its headcount fall by 6%.
The company will sell three and close six radio stations as part of the cuts. That’s approximately 8% of the 109 radio stations it owns and operates in 58 Canadian markets. The three stations in Hamilton and Windsor will be sold to a third-party buyer that’s yet to be announced.
Bell Media’s news operations generate approximately $40 million in operating losses annually, the company reported. For this reason, the management wants to amalgamate its different news brands, such as CTV National News, CP24, BNN, and local reporting, into a single newsroom approach.
In a country with a relatively small population and such a large geography, on the surface, it makes sense to lead with your strongest brand. However, that will hurt its ability to provide local news, the lifeblood of small Canadian towns nationwide.
“We’ve been told now for more than a decade that Canadian companies have to get larger to compete on a global scale. This was always questionable,” Dwayne Winseck, a professor at Carleton University’s School of Journalism and Communication, told BNN Bloomberg.
“And now we’re seeing the danger element of it is that when there are problems with some of these companies, at various levels, it has impacts across the country.”
Shuttering Bureaus, Sacking Execs
As part of the BCE Media cuts, the company is shutting its London and Los Angeles foreign bureaus and cutting staff at its Washington bureau. It will add videographers in four Canadian cities: St. John’s, Charlottetown, Fredericton, and Regina.
As part of BCE’s overall cuts, it plans to reduce the number of executives it employs. It will have executive staffing levels 20% below where they were in 2020.
“To succeed in today’s challenging economic, regulatory and competitive environment and be ready for what comes next, we need to accelerate our shift away from how telecom and media companies have operated in the past,” The Globe and Mail reported Bibic’s comments.
BCE’s named executive officers (NEOs) earned $32.1 million in 2022. Approximately $4.9 million was paid to Wade Oosterman, president of Bell Media, the executive responsible for making his division’s cuts.
What’s interesting about the moves made is that BCE has made a big deal about its legacy phone business losing $250 million in revenue each year. Yet, this business allowed the company to become one of the country’s largest wireless carriers.
In the first quarter, BCE’s revenues increased by 3.5% to $6.05 billion. Unfortunately, its adjusted net earnings fell by 4.8% to $772 million. Worse still, its cash flow from operating activities decreased by 27.3% to $1.25 billion.
It’s still making a large amount of money. However, when you pay out $3.87 a share for dividends in a year — $3.54 billion annually — a 27.3% drop in cash flow is not good for dividend coverage.
Hence the cuts that have just been made.
However, its adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) was $132 million, 37% lower than a year ago, with an 830-basis-point reduction in its margin, to 16.9%, 2.7x less than the margin for Bell Communications and Technology Services, the company’s moneymaker.
It’s been almost 150 years since the first telephone call was made in Brantford, Ontario, when inventor Alexander Graham Bell said: “Mr. Watson, come here — I want to see you.” Today, the companies that still carry his name face an existential decision.
Until BCE either sells Bell Media or gets rid of its dividend, large job cuts will continue to happen every couple of years until there’s nothing left to cut.
For investors, the message is clear: BCE is not a buy.
This story originally appeared on Fintel.
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