Sep 23 2026 12:44 AM EST

Cogeco Shares Slip as U.S. Revenue Pressure Spurs Revised FY2026 Outlook

Cogeco Inc. (TSX: CCA) posted a 5.3% year‑over‑year revenue decline for Q2 FY2026 and issued a revised FY2026 outlook that widens the expected revenue contraction to 2%‑4%. The results, combined with a non‑cash impairment in the U.S. telecom segment, coincided with a 1.5% drop in the stock over the past five days, extending a broader three‑month decline of 11.1%.

Revenue fell to $693.56 million (‑5.3% YoY, ‑3.6% constant‑currency). Adjusted EBITDA slipped to $337.7 million (‑5.3% YoY) while the adjusted EBITDA margin held at 48.7%. Profit for the period rose modestly to $83.585 million (+5.0% YoY), and diluted EPS increased to $1.89 (+7.4% YoY). Free cash flow surged 33% YoY to $155.045 million, supporting a 7% dividend increase to $0.987 per share (annual run‑rate ≈ $2.86, yield ≈ 7.23%).

Revised FY2026 Guidance Highlights

Management now expects FY2026 revenue to decline between 2% and 4% versus FY2025, a modest widening from the prior 1%‑3% range. Adjusted EBITDA is projected to fall 1.5% to 3.5%, compared with the earlier 0%‑2% outlook. Net capital expenditures remain unchanged at $560‑$600 million, but network‑expansion capex is trimmed to $85‑$110 million (down from $100‑$140 million). Free cash flow is still expected to increase 0%‑10% YoY.

Company‑Specific Drivers

Cogeco’s Canadian telecom segment posted modest growth, with revenue up 0.9% YoY and adjusted EBITDA up 3.9% YoY, reflecting continued high‑speed Internet subscriber additions and the rollout of its capital‑light MVNO, Cogeco Mobile, launched in July 2025. The firm’s three‑year transformation program—focused on cost reductions, AI‑enabled tools, and disciplined capex—has lowered capital intensity from 21.6% to 17.6% year‑over‑year, freeing cash for dividend growth and debt reduction.

In the United States, revenue fell 11.6% (‑8.1% constant‑currency) and adjusted EBITDA declined similarly, driven by aggressive pricing competition and a non‑cash impairment of roughly $2.2 billion in the U.S. telecom segment. The launch of the digital challenger brand “welo” and the scaling of new sales channels are intended to reverse this trend, but the impact remains uncertain.

Macro and Industry Context

The U.S. broadband market continues to experience intense pricing pressure, with competitors discounting heavily to retain subscribers. Inflation and rising interest rates have increased operating costs, while regulatory uncertainty—particularly around CRTC wholesale rates in Canada and FCC policy in the United States—adds to earnings volatility. Currency effects also play a role; the company’s guidance assumes a constant USD/CAD rate of 1.3962, whereas recent FX movements have eroded reported growth.

Valuation and Share‑Price Reaction

At a trailing twelve‑month market capitalization of roughly C$5.5 billion, Cogeco trades at a forward P/E of about 6.7×, well below peers such as Telus (≈30×) and Rogers (≈12×). The stock’s recent underperformance—down 5.5% over the past year and 11.1% over three months—reflects investor concern over the U.S. segment’s earnings outlook, the sizable impairment charge, and the widened revenue‑decline guidance. The dividend increase has helped sustain demand from income‑focused investors, but the lower growth expectations have kept the share price under pressure.

Key Risks and Uncertainties

The principal risks to Cogeco’s outlook include: (1) continued pricing pressure in the U.S. broadband market, which could further erode revenue and EBITDA; (2) execution risk around the “welo” brand and other digital initiatives intended to revive U.S. subscriber growth; (3) regulatory outcomes in both Canada and the United States that could affect wholesale rates or capex requirements; (4) the lingering impact of the $2.2 billion U.S. impairment on earnings visibility; and (5) macro‑economic headwinds such as inflation, higher interest rates, and potential currency volatility.

Investors will be watching the Q3 FY2026 results and subsequent guidance for signs that the U.S. turnaround is gaining traction, while also monitoring free cash flow trends and leverage—currently at a net‑debt‑to‑EBITDA ratio of roughly 3.2×—as the company seeks to maintain its dividend growth trajectory.