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TELUS (TU) Misses Earnings, Beats Revenue Estimates in Q3

Zacks

TELUS Corp. TU reported mixed results in third-quarter 2017, wherein the bottom line lagged the Zacks Consensus Estimate, while the top line beat the same.

TELUS currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Net income on a GAAP basis was approximately $294.89 million, up 4.2% year over year. GAAP earnings were 66 cents per share, up 1.5% year over year. The third-quarter adjusted earnings of 52 cents missed the Zacks Consensus Estimate by a penny.

TELUS Corporation Price, Consensus and EPS Surprise


TELUS Corporation Price, Consensus and EPS Surprise | TELUS Corporation Quote

Total revenues were approximately $2,684 million, up 4% year over year and above the Zacks Consensus Estimate of $2,662 million. Service revenues were $2,529.68 million, up 4.2% year over year. Equipment revenues totaled $144.26 million, up 0.6% year over year. Other revenues were $8.77 million, down 15.4% year over year.

Quarterly operating income was $517.25 million, up 5.4% year over year. Adjusted EBITDA (earnings before interest, tax, depreciation and amortization) was $981.9 million, up 4% year over year. Quarterly-adjusted EBITDA margin was 36.6% compared with 36.5% in the year-ago quarter.

In third-quarter 2017, TELUS generated approximately $903 million of cash from operations, reflecting an increase of 9.8% year over year. Free cash flow, in the reported quarter was $171.36 million, surging 119.4% year over year.

In the quarter under review, the company had cash and temporary investments of $388.94 million, up from $344.30 million at the end of 2016. Long-term debt was $9,772.02 million compared with $9,248.39 million at the end of 2016.

Segmental Results

Wireless revenues increased 6.1% year over year to approximately $1,550.17 million in the reported quarter. Wireless network revenues increased $1,429.82 million or 6.8% year over year to $1.8 billion. Equipment and Other revenues were approximately $107.6 million, flat year over year. Inter-service network revenues were $8.78 million, down 26.7% year over year.

Adjusted EBITDA of $647.16 million increased 5.1% from the prior-year quarter’s figure. Quarterly adjusted EBITDA margin was 41.7% compared with 42.3% in the year-ago quarter. Wireless capital expenditures declined 20% from the prior-year quarter’s figure.

Blended ARPU was increased 3% to $54.73. Monthly postpaid subscriber churn declined 8 basis points (bps) year over year to 0.86%. Blended monthly churn declined 13 bps to 1.05% reflecting improvements in both postpaid and prepaid churn rates, as well as an increase in the mix of postpaid versus prepaid subscribers.

Wireless net additions of 124,000 increased 44,000 from the prior-year number. Postpaid net rose 115,000 year over year by 28,000 on success of targeted promotions and marketing efforts focused on higher-value postpaid and smartphone loading as well as lower churn. Prepaid net additions totaled 9,000 due to improvements in prepaid churn rate.

Wireline revenues increased 1% to $1,181.95 million. Data service & equipment revenues were $850.4 million, up 4.1%. Voice revenues were $243.1 million, down 9%. Other services and equipment revenues were $4303 million, up 5.9% year over year. Other operational revenues were approximately $4.78 million, down 33.3%. Inter-service revenues grossed around $40.6 million, up 6.3% year over year.

Wireline EBITDA increased $36 million or 9.8%, while Adjusted EBITDA increased $12 million or 3% over last year. This upside reflects growth in data service margins, including Internet, TELUS Health, and TELUS TV. Cost savings from operating efficiency and effectiveness initiatives are also key factors.

Wireline capital expenditures increased 19% from the year-ago quarter.

During the reported quarter, total TELUS TV net additions of 9,000 reflected a decline of 5,000 from a year ago High-speed Internet net additions of 19,000 increased by 5,000 over the same time frame on expansion of high-speed broadband footprint, including fibre to the premises, and the success of recently-launched innovative offerings. Residential network access lines (NALs) declined by 20,000 in the quarter, showing an improvement of 5,000 from a year ago. Residential NAL losses continue to reflect the ongoing shift to wireless and Internet substitution as well as increased competition, partially mitigated by the success of bundled service offerings and customers-first initiatives.

Dividend Hike

TELUS’ board of directors declared a quarterly dividend of C$0.5050 per share on issued and outstanding common shares. The dividend is payable on Jan 2, 2018, to shareholders of record as of Dec 11, 2017.

The company’s 2017 annual dividend of $1.97 represents a 7.1% increase from the 2016 annual dividend of $1.84. This is the fourteenth dividend hike since TELUS announced its original multi-year dividend growth program in May 2011. Over this period, TELUS’ dividend has been bumped up by 92%.

Guidance

For 2017, TELUS revised its estimate for economic growth in Canada. For its incumbent local exchange carrier (ILEC) provinces in Western Canada, the company estimates annual rates of economic growth in British Columbia at 3.2% in 2017 and economic growth in Alberta at 3.5% in 2017.

The company’s cash income tax payments assumption has been revised down to a range of $170 million to $230 million, from $300 million to $360 million.

Headwinds

TELUS has been facing fierce competition in the wireless and wireline segment. In the wireless segment, it competes against the likes of Rogers Communications Inc. RCI and BCE Inc.’s BCE subsidiary, Bell Canada, followed by threats from small regional carriers like MTS in Manitoba and SaskTel in Saskatchewan. The wireline segment faces threats from cable-TV operators such as Shaw Communications Inc SJR.

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