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Shaw Communications (SJR) Q1 Earnings Lag, View Intact

Zacks

Shaw Communications Inc. SJR reported weak financial results for the first quarter of fiscal 2017 (ended Nov 30, 2016) wherein the bottom line missed the Zacks Consensus Estimate.

Adjusted earnings per share came in at 13 cents in the quarter, missing the Zacks Consensus Estimate of 23 cents. Net income was $89 million, reflecting a decrease of 59.2% from $218 million for the first quarter of fiscal 2016.

Total revenue came in at $1.313 billion, reflecting an increase of 14.9% from $1.143 billion in the year-ago quarter. Revenues increased 14.9% in the reported quarter, primarily due to the acquisition of Freedom Mobile (formerly, WIND) on Mar 1, 2016, that contributed $138 million to Wireless revenues. The Consumer, Business Network Services and Business Infrastructure Services divisions also contributed to the consolidated revenue increase for the quarter.

First-quarter fiscal 2017 operating income before restructuring costs and amortization was $539 million, reflecting an increase of 6.1% from $508 million for the first quarter of 2016. Operating margin for the quarter was 41.1%, down 44.4% year over year.

Cash Flow


In the first quarter of fiscal 2017, Shaw Communications generated $414 million of cash from continued operations compared with $347 million in the prior-year quarter. Free cash flow decreased $15 million from the year-ago quarter to $158 million. The decline was primarily the result of a $74 million reduction in free cash flow from discontinued operations following the sale of the Media division in 2016 and the addition of the Wireless division.

Liquidity

At the end of first-quarter fiscal 2017, Shaw Communications had cash and total outstanding debt of $289 million and $5,364 compared with $398 million and $5,247 million, respectively, at the end of fiscal 2016. The debt-to-equity ratio was 0.34 versus 0.35 at the end of fiscal 2016.

Subscriber Statistics (As of Nov 30, 2016)

At the Consumer segment, the video cable customer base totaled 1,657,913 reflecting a net reduction of 13,146 customers in the quarter under review. Video satellite customer count decreased by 15,669 to 774,905. Meanwhile, with the addition of 16,964 customers in the quarter, the company's Internet base now stands at 1,804,606. Digital phone lines grossed 938,918, reflecting a sequential reduction of 17,845 lines.

For the Business Network Service segment, the video cable customer base totaled 57,955, marking a net loss of 3,198 customers in the quarter. Video satellite customers decreased by 35 to 30,959. Further, the company lost 2,867 Internet customers in the reported quarter, taking the tally to 177,000. Digital phone lines grossed 306,692, reflecting a sequential addition of 5,364 lines.

For the Wireless Segment, the postpaid customer base totaled 681,335, marking a net addition of 14,307 customers from the previous quarter. The prepaid section however witnessed a loss of 4,837 customers from the previous year quarter, taking the figure to 371,423 customers.

The period, however, ended with 6,801,706 customers, inclusive of 1,052,758 Wireless subscribers. Wireless subscribers increased by 9,470 in the fiscal first quarter. Consumer and Business Network Services saw a combined 30,432 RGU decline in the quarter compared with a decline of 44,840 in the year-ago quarter.

Consumer Segment

Quarterly revenues grossed $947 million in the fiscal first quarter, up 0.4% year over year from $943 million. Quarterly operating income before restructuring costs and amortization came in at $405 million, down 3.3% year over year from $419 million. Operating margin was 42.8%, down from 44.4% in the first quarter of fiscal 2016.

Business Network Services Segment

Quarterly total revenue from the division was $144 million, up 5.9% year over year from $136 million. The segment’s quarterly operating income before restructuring costs and amortization was $72 million, up 12.5% year over year from $64 million. Operating margin came in at 50.0%, up from 47.1% from the first quarter of fiscal 2016.

Business Infrastructure Services Segment

Quarterly total revenue was $90 million, up 23.3% year over year from $73 million. Operating income before restructuring costs and amortization was $32 million, up 28% year over year from $25 million. Operating margin for the first quarter of fiscal 2017 was 35.6%, up from 34.2% in the comparable quarter a year ago.

Wireless Service Segment

Quarterly revenues from the newly acquired wireless segment was $138 million in the first quarter of fiscal 2017 while operating income before restructuring costs and amortization was $30 million. Operating margin came in at 21.7%.

Shaw Communications Inc. Price, Consensus and EPS Surprise

Shaw Communications Inc. Price, Consensus and EPS Surprise | Shaw Communications Inc. Quote

Financial Outlook

The fiscal 2017 guidance remains the same as previously issued by Shaw Communications. Operating income before restructuring costs and amortization is expected to range between $2.125 billion and $2.175 billion and free cash flow is expected to exceed $400 million. Consolidated capital investment targets also remain unchanged from the previously provided guidance of $1.3 billion for the year.

Shaw Communications operates in a highly competitive wireless market with incumbents like Rogers Communications Inc. RCI, TELUS Corp. TU and BCE Inc. BCE. The company’s operation in a highly competitive wireless market led to losses in its video, Internet and landline phone business. It currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Notably, shares of Shaw Communications have underperformed the Zacks categorized Cable TV industry’s growth in the past one year. The stock has gained 22.36%, lagging the industry’s gain of 33.68% over the same time period.

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