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Shaw Communications Inc. (SJR - Analyst Report) declared solid financial results for the third quarter of fiscal 2012. GAAP net income from continuing operation was $248.4 million, up 22.2% year over year. GAAP net earnings per share were 53 cents, up 17.8% year over year. However, the third-quarter adjusted net earnings per share were 47 cents, well above the Zacks Consensus Estimate of 42 cents. Quarterly total revenue of approximately $1,280 million inched down 0.5% year over year, but was in line with the Zacks Consensus Estimate of $1,278 million.

Quarterly operating income before amortization was around $568 million, down 3.2% year over year. Quarterly operating margin stood at 44.4% compared with 45.6% in the prior-year quarter. In the third quarter of fiscal 2012, Shaw Communications generated $350.5 million of cash from operations compared with $369.6 million in the year-ago quarter. Free cash flow in the reported quarter was approximately $195.3 million compared with $228.3 million in the year-ago quarter.

At the end of the reported quarter, Shaw Communications had cash & cash equivalents of $252.4 million compared with $443.7 million at the end of fiscal 2011. At the end of the reported quarter, Shaw Communications had $5,269 million in outstanding debt compared with $5,265 million at the end of fiscal 2011. Debt-to-capitalization ratio at the end of the third quarter of fiscal 2012 was 0.55 compared with 0.57 at the end of fiscal 2011.

Subscribers Statistics

At the end of the third quarter of 2012, Basic Cable customer base was 2,235,546, reflecting a net reduction of 21,515 year over year. Digital TV customer base was 1,925,764, representing a net addition of 246 year over year. Digital TV penetration rate is now 86.1% of basic TV. Internet customer base stood at 1,906,168, reflecting quarterly net reduction of 429. Digital phone lines were 1,339,559, reflecting year-over-year net addition of 29,142. DTH customer base was 908,868, representing quarterly net reduction of 1,820.

Cable Segment

Quarterly revenue was $795.2 million, up 1.1% year over year. Strong revenue growth was attributable to subscriber addition and rate increases. Quarterly operating income before amortization was $377.6 million, down 3.8% year over year.

Satellite Segment

Quarterly total revenue of $211.3 million was up 0.5% year over year.  Within this segment, DTH revenue was $190.3 million, up 0.5% year over year and Satellite Services revenue was $21 million, remaining flat year over year.  The segment’s quarterly operating income before amortization was $76.1 million, and remained unchanged from the year-ago quarter.

Media Segment

Quarterly total revenue was $295.4 million, down 5.4% year over year. Operating income before amortization was $114.2 million, down 3.4% year over year.  

Our Recommendation

Currently, Shaw Communicationshas a Zacks #3 Rank, implying a short-term Hold rating on the stock. We currently assigned a long-term Underperform recommendation. Although Shaw Communications offers triple-play cable TV and satellite TV, Internet, and wireline phone services, 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’s market share.

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