Despite a turbulent macro-economic environment, Israeli telecommunications company Cellcom Israel Ltd. (CEL) on Monday, reported a 15% growth in second-quarter net income and further strengthened its standing in the market well ahead of its rival Partner Communications Co. Ltd. (PTNR).
For the quarter ended June 30, 2009, the company's net income increased 15% to 277 million shekels ($71 million) or 2.79 shekels per share ($0.71) from 241 million shekels or 2.32 shekels per share in the year-ago quarter. Cellcom's per share earnings for the quarter were well ahead of Wall Street's expectation of 2.68 shekels per share.
The second-quarter 2008 results included a one-time reversal of rent expenses in the amount of approximately 14 million shekels. Without elimination of the one-time effects in the second quarter 2008, net income in the second-quarter of 2009 increased 20.4%.
Total revenue for the quarter increased marginally to 1.61 billion shekels ($410.3 million) from 1.60 billion shekels ($408.3 million) in the comparable year-ago quarter. Analysts polled by Thomson Reuters were looking for revenue of 1.57 billion shekels.
The total revenue includes services revenue, revenue from content and value added services and handset and accessories revenue. Services revenue, which accounts for a major chunk of the company's total revenue, rose a modest 0.7% to 1,420 million shekels ($362.3 million), while revenue from content and value added services increased 30.6% to 209 million shekels ($53.3 million).
Thanks to cost cuts, despite the ongoing airtime price erosion and a substantial decrease in revenue from roaming services following the significant reduction in incoming and outgoing tourism in the face of a weaker economy, the company has posted decent revenue.
Selling, Marketing, General and Administrative Expenses for the second-quarter of 2009 declined to 343 million shekels ($87 million) from 350 million shekels ($89 million) in the second-quarter of 2008, helped by a decrease in advertising expenses and in salaries and related expenses primarily due to a decrease in option related expenses.
The company noted that bad debts and doubtful accounts expenses increased mainly following the number portability, which allows subscribers to switch between cellular operators prior to settling their outstanding debt. The increase in bad debts and doubtful accounts may also have been influenced by the global economic slowdown, Cellcom said.
Gross profit margin for second-quarter of 2009 increased to 49.1% from 48.8% in the second quarter last year. Operating income for the quarter increased 6.5% to 444 million shekels ($113 million) from 431 million shekels ($110 million) in the comparable period a year before.
During the second-quarter of 2009, the company added about 20,000 net new subscribers, mostly post-paid. The number of new 3G subscribers added during the second-quarter of 2009 was 44,000 taking its total to 877,000.
At the end of June 2009, Cellcom's subscriber base was 3.228 million compared to Partner's 2.944 million subscribers.
The monthly Average Revenue per User, or ARPU, for the second-quarter of 2009 decreased 3.5% to 143.7 shekels ($36.7) from 148.9 shekels ($38.0) in the year-ago quarter due to lower roaming revenues recorded following the decline in tourism.
Free cash flow for the second quarter of 2009 increased 33.3% to 400 million shekels ($102 million), compared to the same quarter last year.
The company also said it would pay a dividend of 300 million shekels or 3.05 shekel per share on September 14. According to the Israeli tax law, the company will deduct at source 20% of the dividend amount payable to each shareholder, as aforesaid, subject to applicable exemptions.
With the company CFO Tal Raz set to resign on September 20, Yaacov Heen has been nominated as his successor, effective September 21.
Cellcom has been expanding its arsenal of product offerings. As an additional solution for customers traveling abroad who make many phone calls with WIFI supported devices and would like to cut costs, Cellcom introduced a new service last month called Cellcom Link, which allows roaming subscribers to initiate voice calls and send text messages over a Wi-Fi connection, via their current mobile handsets at low rates.
As recently as August 9, Cellcom launched the first Googlephone in Israel - Samsung's i7500 Galaxy powered by Google Android operating system. The company also has plans to launch the iPhone by Apple in the near future.
Meanwhile, Cellcom and Partner Communications are both bidding for takeover target -- MIRS Communications, a wholly-owned subsidiary of Motorola Israel. The value of the bids offered by the two companies is still under wraps.
With Cellcom continuing to present growth in revenues, operating and net profit and cash flow, as well as steadily increasing and improving its subscriber base despite the challenging competitive environment, highly regulated and turbulent macro-economic environment, the stock is worth watching.
CEL, which has thus far hit a 52-week low of $19.71 and 52-week high of $34.25, closed Friday's trade at $27.88.
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June 05, 2026 16:18 ET A busy week for economic news flow saw a slew of reports being released that reflected the trends in the U.S. labor market. In Europe, economic growth and inflation data gained attention as the European Central Bank and Bank of England head for policy session later in the month. In Asia, the monetary policy session of the Indian central bank was in focus as the country, a major oil importer, reels under the pressures of a weaker rupee and rising inflation.