Telus Corporation (TU - Analyst Report) reported first-quarter 2014 adjusted earnings of 62 Canadian cents per share (per ADS of 57 cents), 10.7% up year over year and ahead of the Zacks Consensus Estimate of 56 cents.
Total revenue grew 5.0% year over year to C$2.9 billion ($2.66 billion), surpassing the Zacks Consensus Estimate of $2.60 billion. The year-over-year increase was buoyed by higher revenues from wireless and wireline data services.
Quarterly adjusted EBITDA grew 5.1% year over year to C$700 million ($635 billion), resulting in an EBITDA margin of 45.3%, up 40 basis points.
Wireless revenues rose 5.7% year over year to C$1.57 billion ($1.42 billion) in the reported quarter driven by higher subscriber and ARPU growth.
Within network revenues, data revenues grew 10.2% year over year on continued strong adoption of smartphones and related data applications and higher data roaming revenues. Voice revenues slid 5.6% year over year, due to falling voice average revenue per user (ARPU).
ARPU grew 2.0% year over year to C$61.24 ($55.58). The monthly subscriber churn (customer switch) improved to 1.39% from 1.48% in the year-ago quarter on the back of high-value client retention, lower smartphone churn and the company’s customer-first service approach.
Quarterly, net wireless subscriber addition was 12,000, reflecting a massive decline of 63.6% from the year-ago quarter. Telus lost 36,000 net prepaid customers in the first quarter compared with a net loss of 26,000 in the year-ago quarter. Additionally, net post-paid subscriber addition was 48,000, representing an annualized decline of 18.6%.
Telus had 7.8 million wireless subscribers (up 1.5% year over year), including 6.80 million post-paid customers (up 3.0% year over year) and $1.02 million prepaid customers (down 7.4% year over year) at the end of the reported quarter.
Wireline revenues increased 4.2% year over year to C$1.38 billion ($1.73 billion) on strong growth in data services and equipment revenues, partially compensated by lower voice local and voice long distance.
During the quarter, Telus added 27,000 TV subscribers to reach a total of 842,000 customers (up 18.3% year over year). Net high-speed Internet subscriber additions were 21,000, bringing the total number of customers at the end of the first quarter to 1.42 million. The upside was driven by the success of Optik TV and Optik high-speed Internet service launched in Jun 2010.
Telus exited the quarter with net debt of C$8.20 billion ($6.984 billion) as compared to C$7.59 billion ($6.984 billion) at the end of 2013. Net debt to EBITDA (excluding restructuring costs) increased to 1.97 times from 1.67 times in the prior quarter and was well within the company’s long-term target range of 1.5−2 times.
Telus generated free cash flow of C$291 million ($1.03 billion), exhibiting an annualized decline of 18.7%. Capital expenditure crept up 6.2% year over year to C$496 million ($1.93 billion) in the first quarter.
Telus increased quarterly dividend by 11.8% to 38 Canadian cents . The increased dividend is payable on Jul 2, 2014 to holders of the record on Jun 10, 2014.
We believe Telus’ ongoing investments in the expansion of LTE and increased rollout of smartphones and Internet data centers will fuel strong growth leading to more opportunities in the wireless and cloud computing businesses. Likewise, on the wireline front, Telus continues to focus on the efficiency of the Optik TV and Optik High-Speed Internet broadband services, which remain as its strengths. Nevertheless, persistent erosion in access lines in the wireline segment and weak voice services in wireless might weigh on the company’s future earnings. Competitive threats from other players like Rogers Communications Inc. (RCI - Analyst Report) and BCE Inc. (BCE - Analyst Report), and reduced roaming charges are other impediments, which keep us on the sidelines.
Telus currently carries a Zacks Rank #4 (Sell).
A better-ranked stock in this sector is Level 3 Communications, Inc. (LVLT - Analyst Report), which holds a Zacks Rank #1 (Strong Buy).