Earnings Preview: Shaw Communications

Shaw Communications Inc. ( SJR - Analyst Report ) is slated to release its first-quarter fiscal 2013 results on Wednesday, January 9, before the opening bell. The Zacks Consensus Estimate for the quarter is pegged at 45 cents down 1.86% from the year-ago quarter.

With respect to earnings surprises, Shaw Communications has outperformed the Zacks Consensus Estimate in three of the last four quarters with an average beat of 3.82%.

Fourth Quarter Recap

On October 25, Shaw Communications reported its fourth-quarter 2012 financial results. Quarterly GAAP net income was approximately $131.4 million or 28 cents per share compared with a net income of $167 million or 37 cents per share in the prior-year quarter. However, adjusted earnings per share (excluding special items) of 28 cents in the reported quarter beat the Zacks Consensus Estimate by a penny.

Quarterly net revenue inched up 2.5% year over year to $1,196 million, surpassing the Zacks Consensus Estimate of $1,170 million. Quarterly operating income before amortization climbed 4.2% year over year to $495 million. Quarterly operating margin stood at 41.4% compared with 40.7% in the prior-year quarter.

Factors Impacting Earnings

Similar to the previous quarter the company continues to struggle in its cable TV business. The company’s cable operation is facing severe competition from IPTV service provider like Telus Corp’s ( TU - Analyst Report ) popular Optik TV which supports over 400 digital channels and more than 100 HD channels.

However, in the reported quarter Shaw Communications has performed impressively with respect to net customer additions on several fronts. The company has improved on its EBITDA margin and free cash flow due to the discontinuation of promotional activities. Additionally, the acquisition of Canwest Global Communications Corp. is expected to position the company as one of the leading entertainment and communications companies in the Canadian broadcasting industry.

Estimate Revisions

For fiscal 2013, in the last 30 days, out of the total 9 estimates, 2 estimates moved north while one moved south. For fiscal 2014, out of the 7 estimates, 2 were revised upward, while none moved downward over the same period. Estimates remained unchanged at $1.59 and $1.65 for fiscal 2013 and 2014 respectively.

Our Recommendation

Shaw Communications launched “Shaw Go” – an innovative TV Everywhere service, which will be available on Apple Inc. ( AAPL - Analyst Report ) developed iPad 2 and iPhone 5. Going forward, the company will also offer streaming live TV, on-demand content and several family-focused programs through Shaw Go.

Based on these considerations, we retain our long-term Outperform recommendation on Shaw Communications. The company holds a short term Zacks #2 Rank (Buy).