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Shaw Communications (SJR) Beats on Q2 Earnings & Revenues

Zacks

Shaw Communications Inc. SJR delivered second-quarter fiscal 2018 adjusted earnings from continuing operations of 40 cents per share beating the Zacks Consensus Estimate by 17 cents. The figure surged almost 68% from the year-ago quarter.

Including restructuring charges of C$417 million, the company reported loss of 33 cents per share. The company incurred the charges related to Total Business Transformation (“TBT”) initiative and Voluntary Departure Program (“VDP”) restructuring programs.

Total revenues from continuing operations were $1.08 billion, much better the Zacks Consensus Estimate of $995 million. The figure increased 12.4% from the year-ago quarter primarily driven by strong growth in Wireless revenues.

Segment Details

Wireline revenues remained unchanged on a year-over-year basis to $846.9 million. Consumer revenues declined 0.8% to $735.7 million, fully mitigated by 5.3% increase in Business revenues, which totaled $111.2 million.

In the Wireline-Consumer segment, the video cable customer base totaled 1,635,554, reflecting a net loss of 17,715 subscribers. Video satellite customer count declined 4,301 to 748,736. Digital phone lines grossed 893,271, reflecting a reduction of 14,842 lines.

Shaw Communications Inc. Price, Consensus and EPS Surprise

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


Shaw Communications’ Wireline Internet business added 5,476 customers in the quarter to reach total customer base of 1,884,179.

In the Wireline-Business Network Service segment, the video cable customer base totaled 49,934, reflecting a net loss of 400 customers in the quarter.

However, Video satellite customers grew by 1,330 to 32,353. Further, the company gained 162 Internet customers, taking the tally to 170,312. Digital phone lines grossed 337,951 reflecting an addition of 4,655 lines.

Wireless revenues surged 105.7% from the year-ago quarter to $230.4 million, primarily driven by higher postpaid revenue generating units (RGUs) and an improvement in average revenue per unit (ARPU).

Shaw Communications continues to actively roll out its 2500 and 700 MHz spectrum that further improves the network quality and will enable additional features such as VoLTE going forward.

In the reported quarter, the company added approximately 89,700 net Wireless RGUs, reflecting solid customer demand for Apple’s AAPL iPhone along with attractive device pricing and packaging options.

In the Wireless Segment, postpaid customer base totaled 890,649 reflecting a net addition of 93,508 customers in the reported quarter. However, the prepaid section lost 3,806 customers taking the total to 380,536.

Service revenues increased 21.4% to $112.8 million. Equipment revenues jumped to $117.6 million from $19.1 million reported in the year-ago quarter.

Operating Details

In second-quarter fiscal 2018, operating, general & administrative expenses soared 21.5% year over year to $678.5 million. Operating, general & administrative expenses as percentage of revenues increased 470 basis points (bps) to 63%.

As a result, operating income before restructuring costs and amortization declined 0.4% year over year to $398 million. Operating margin also contracted 470 bps from the prior-year quarter to 37%.

Segment wise, Wireline operating income declined 1.9% to $369.4 million. Wireline segment operating margin contracted 80 bps to 43.6% primarily due to challenging Consumer video environment. Shaw Communications stated declining customer base and continuing preference for lower priced video packages are plaguing market growth.

Wireless operating income jumped 24.1% to $28.6 million. Wireless segment operating margin contracted 820 bps to 43.6%, primarily due to incremental costs from higher subscriber loading and margin pressure from significantly higher equipment sales.

Financial Outlook

Shaw Communications does not anticipate TBT restructuring costs to exceed $450 million in fiscal 2018. In fact, management expects annualized savings of C$215 million and will be fully realized in fiscal 2020. VDP related cost reductions are expected to be approximately C$48 million in fiscal 2018.

Management reiterated fiscal 2018 guidance. Operating income before restructuring costs and amortization is anticipated to grow 5% over fiscal 2017.

Capital investments are expected to be approximately C$1.38 billion, while free cash flow is likely to be roughly C$375 million.

Zacks Rank & Stocks to Consider

Shaw Communications carries a Zacks Rank #3 (Hold). Discovery DISCA and Cable One CABO are stocks worth considering in the broader sector. Both the stocks sport Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

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