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Shaw Communications Inc. (SJR - Analyst Report) declared its fourth-quarter fiscal 2011 financial results almost in line with the Zacks Consensus Estimates. Net income for the reported quarter was $171 million or 38 cents per share compared with a net income of $117 million or 27 cents per share in the prior-year quarter. Adjusted EPS of 35 cents was exactly in line with the Zacks Consensus Estimate.

Quarterly total revenue of approximately $1,215 million was up 25.8% year over year but slightly below the Zacks Consensus Estimate of $1,218 million. The year-over-year improvement was primarily attributable to the acquisition of the Shaw Media coupled with customer growth and rate increases in the Cable and Satellite segments.

Quarterly operating income before amortization was around $490 million, up 12.2% year over year. Quarterly operating margin was 40.3% compared with 45.2% in the prior-year quarter. In the fourth quarter of 2011, Shaw Communications generated $368.8 million of cash from operations compared with $338.2 million in the year-ago quarter. Free cash flow in the reported quarter was approximately $50.5 million versus $71.3 million in the year-ago quarter.

At the end of fiscal 2011, Shaw Communications had cash & cash equivalents of $456.2 million compared with $224.9 million at the end of fiscal 2010. At the end of fiscal 2011, Shaw Communications had $5,407.4 million of outstanding debt compared with $4,114.7 million at the end of fiscal 2010. Debt-to-capitalization ratio at the end of fiscal 2011 was 0.60 compared with 0.65 at the end of fiscal 2010.

Subscribers Statistics

At the end of fiscal 2011, Basic Cable customer base was 2,289,775, reflecting net reduction of 16,207 year over year. Digital TV customer base was 1,819,388, representing net addition of 49,548 year over year. Digital TV penetration rate is now 79.5% of basic TV. Internet customer base stood at 1,877,231, reflecting net addition of 13,528 year over year. Digital phone lines were 1,233,041, reflecting year-over-year net addition of 22,776. DTH customer base was 908,883, representing net addition of 806 year over year.

Cable Segment

Quarterly revenue was $806 million, up 5.5% year over year. Strong revenue growth was attributable to subscriber addition and rate increases. Quarterly operating income before amortization was $403.7 million, up 10.3% year over year.

Satellite Segment

Quarterly total revenue of $213.7 million was up 3.3% year over year.  Within this segment, DTH revenue was $192.9 million, up 3.8% year over year and Satellite Services revenue was $20.8 million, down 1% year over year.  The segment’s quarterly operating income before amortization was $74 million, up 4.5% year over year.

Media Segment

Quarterly total revenue was $215.5 million, up 8% year over year. Operating income before amortization was $12.2 million.

Our Recommendation

In September 2011, Shaw Communicationsdecided to put aside its much-hyped plan to enter into the wireless market of Canada. The company offers triple-play cable TV and satellite TV, Internet, and wireline phone services, whereas its main competitor Telus Corp. (TU - Analyst Report) offers Cable TV, Internet, wireline, and wireless services. Telus shares a national wireless network with Bell Canada, a division of  BCE Inc. (BCE - Analyst Report). Its popular Optik TV offering IPTV services is quickly eroding Shaw Communications’ market share. In addition, Shaw Communications will now lack a major competitive weapon, which is its wireless service. 

We maintain our long-term Neutral recommendation on Shaw Communications. Currently, Shaw Communications has a Zacks #3 Rank, implying a short-term Hold rating on the stock.

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