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Shaw Communications Inc. (SJR - Analyst Report) declared second quarter of fiscal 2012 financial results missing the Zacks Consensus Estimates by a penny. Net income for the reported quarter was $178 million or 38 cents per share compared with $172 million or 38 cents per share in the prior-year quarter.

Quarterly total revenue of approximately $1,206.4 million increased 3% year over year, but came in below the Zacks Consensus Estimate of $1,213 million. The year-over-year improvement was primarily attributable to rate hikes in the Cable and Satellite segments.

Quarterly operating income before amortization was around $483.1 million, down 2.4% year over year. Quarterly operating margin stood at 40% compared with 42.2% in the prior-year quarter. In the second quarter of 2012, Shaw Communications generated $199.9 million in cash from operations compared with $333.2 million in the year-ago quarter. Free cash flow in the reported quarter was approximately $57 million compared with $174 million in the year-ago quarter.

At the end of the second quarter of fiscal 2012, Shaw Communications had cash & cash equivalents of $153.9 million compared with $434.1 million in the previous-year quarter. At the end of the reported quarter, Shaw Communications had $4,713.8 million in outstanding debt compared with $5,150.9 million in the year-ago quarter. Debt-to-capitalization ratio at the end of the second quarter of fiscal 2012 was 0.55 compared with 0.59 at the end of second quarter of fiscal 2011.

Subscribers Statistics

At the end of the second quarter of 2012, Basic Cable customer base was 2,257,061, reflecting a net reduction of 13,662 year over year. Digital TV customer base was 1,925,518, representing a net addition of 46,564 year over year. Digital TV penetration rate is now 84.5% of basic TV. Internet customer base stood at 1,906,597, reflecting net addition of 18,681 annually. Digital phone lines were 1,310,417, reflecting year-over-year net addition of 54,407. DTH customer base was 910,688, representing an annual net addition of 1,274.

Cable Segment

Quarterly revenue was $787.9 million, up 4.6% year over year. Strong revenue growth was attributable to subscriber addition and rate increases. Quarterly operating income before amortization was $345 million, down 4.6% year over year.

Satellite Segment

Quarterly total revenue of $206.8 million was up 3.4% year over year.  Within this segment, DTH revenue was $187.2 million, up 3.8% year over year and Satellite Services revenue was $19.6 million, remained flat year over year.  The segment’s quarterly operating income before amortization was $69.6 million, and remained unchanged from the year-ago quarter.

Media Segment

Quarterly total revenue was $237.2 million, down 0.8% year over year. Operating income before amortization was $68.6 million, down 7.7% year over year.  

Our Recommendation

In September last year, 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 cannibalizing 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 Communicationshas a Zacks #3 Rank, implying a short-term Hold rating on the stock

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