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Shaw Communications Inc. (SJR - Analyst Report) declared its first quarter of fiscal 2012 financial results, beating the Zacks Consensus Estimates. Net income for the reported quarter was $200 million or 43 cents per share compared with a net income of $17 million or 3 cents per share in the prior-year quarter. Adjusted EPS of 46 cents was a penny higher than the Zacks Consensus Estimate.

Quarterly total revenue of approximately $1,266 million was up 19% year over year and was well above 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 $560 million, up 18% year over year. Quarterly operating margin was 44.2% compared with 44.4% in the prior-year quarter. In the first quarter of 2012, Shaw Communications generated $306 million of cash from operations compared with $65 million in the year-ago quarter. Free cash flow in the reported quarter was approximately $95 million compared with a negative $143 million in the year-ago quarter.

At the end of the first quarter of fiscal 2012, Shaw Communications had cash & cash equivalents of $360 million compared with $456.2 million at the end of fiscal 2011. At the end of the reported quarter, Shaw Communications had $5,205 million of outstanding debt compared with $5,407.4 million at the end of fiscal 2011. Debt-to-capitalization ratio at the end of the first quarter was 0.56 compared with 0.60 at the end of fiscal 2011.

Subscribers Statistics

At the end of the first quarter of fiscal 2012, Basic Cable customer base was 2,267,007, reflecting net reduction of 22,768 year over year. Digital TV customer base was 1,878,954, representing a net addition of 59,566 year over year. Digital TV penetration rate is now 82.9% of basic TV. Internet customer base stood at 1,887,916, reflecting net addition of 10,685 year over year. Digital phone lines were 1,256,010, reflecting year-over-year net addition of 22,969. DTH customer base was 909,414, representing net addition of 531 year over year.

Cable Segment

Quarterly revenue was $784 million, up 4% year over year. Strong revenue growth was attributable to subscriber addition and rate increases. Quarterly operating income before amortization was $373 million, up 7% year over year.

Satellite Segment

Quarterly total revenue of $207 million was up 1% year over year.  Within this segment, DTH revenue was $187 million, up 2% year over year and Satellite Services revenue was $20 million, down 5% year over year.  The segment’s quarterly operating income before amortization was $68 million, remaining same year over year.

Media Segment

Quarterly total revenue was $296 million, down 3% year over year. Operating income before amortization was $199 million, down 8% year over year.  

Dividend Increased

The board of directors of Shaw Communications has authorized a 5% hike in its annual dividend to $0.97 per share. Shaw Communications’ dividends are declared and paid on a monthly basis and this increase will commence on March 29, 2012.

Our Recommendation

In September 2011, Shaw Communications decided 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. Currently, Shaw Communications lacks 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 #4 Rank, implying a short-term Sell rating on the stock. This was primarily due to the increasing loss of video susbcribers.

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