Sep 19 2026 05:18 AM EST
BCE’s Revenue Mix Shift and Capex Surge Weigh on Share Performance
The latest earnings release showed BCE Inc. (TSX: BCE) posting a 1.5% year‑over‑year revenue increase to $6,176 million, while adjusted earnings per share rose to $0.65. Despite the earnings beat, the stock has underperformed its benchmark by more than ten percentage points this year, a gap that investors are attributing to a weakening product mix and a steep rise in capital expenditures.
Revenue mix and margin pressure
Service revenue grew 4.3% to $5,491 million, but product revenue plunged 16.3% to $685 million. The decline in higher‑margin product sales dragged the adjusted EBITDA margin down to 43.8%, only a modest improvement on a 40‑basis‑point rise from the prior year.
Capital intensity and cash flow
Capex surged 41.5% to $1,080 million, driven by the Ziply Fiber build‑out in the United States and the Bell AI Fabric data‑center program. Operating cash flow rose 11.0% to $2,162 million, but free cash flow fell 9.5% to $1,042 million versus $1,152 million a year earlier. The higher capital intensity has lowered the free‑cash‑flow outlook to $2.1 billion–$2.3 billion for 2026, well below the $3.3 billion–$3.5 billion range previously signaled.
Strategic initiatives: growth versus cost
Bell Media delivered an 8.9% revenue increase to $918 million, boosted by a 23% rise in Crave subscribers and a 49% jump in direct‑to‑consumer streaming. The FIFA 2026 tournament generated 30.5 million Canadian viewers, adding a short‑term advertising tailwind. Meanwhile, the U.S. fiber business (Ziply Fiber) added 99,600 residential net connections, the highest quarterly total since the acquisition, but its revenue contribution remains modest.
The AI‑fabric data‑center rollout, with a contracted capacity of roughly 335 MW and tenant pre‑payments of about $400 million, is intended to generate $1 billion in revenue by 2030. However, the majority of the $1.3 billion Saskatchewan capex will be incurred in the second half of 2026, further pressuring cash generation in the near term.
Financial health and dividend policy
Net earnings slipped 2.3% to $629 million, while adjusted net earnings rose 2.0% to $604 million. The net‑debt‑to‑EBITDA ratio stands at approximately 3.7×, marginally better than the prior quarter but above the target of 3.5× by end‑2027. The board maintained the annualized dividend at $1.75 per share, with a quarterly payout of $0.4375 declared on August 6 2026.
Market reaction and outlook
Over the past six months BCE shares have fallen 8.4%, lagging the broader TSX index by more than ten points. The underperformance reflects investors’ recalibration of growth expectations after the product‑revenue decline and the elevated capex profile. Analysts note that while the media and fiber segments provide upside, the near‑term cash‑flow strain and margin compression could keep valuation multiples depressed.
Key risks and unanswered questions
• Continued weakness in product sales could further erode margins if not offset by higher‑margin services.
• The heavy capital outlay for AI‑fabric and U.S. fiber builds may delay free‑cash‑flow recovery, especially if tenant uptake slows.
• Macroeconomic headwinds—higher inflation, interest‑rate pressure and a volatile CAD/USD pair—could suppress consumer spending on wireless and broadband services.
• Regulatory risk around spectrum allocation and foreign‑ownership limits remains a material uncertainty for the Canadian telecom sector.