Shaw Communications Beats Easily

Shaw Communications Inc. (SJR - Analyst Report) declared solid financial results for the first quarter of fiscal 2013. GAAP net income from continuing operations was $240 million, up 16.3% year over year. GAAP net earnings per share were 50 cents, up 14% year over year, and easily outpaced the Zacks Consensus Estimate of 45 cents. Quarterly total revenue climbed 3.1% year over year to approximately $1,345 million, handily beating the Zacks Consensus Estimate of $1,309 million.

Quarterly operating income before amortization was around $613 million, up 6.2% year over year. Quarterly operating margin stood at 45.6% compared with 44.2% in the prior-year quarter. In the first quarter of fiscal 2013, Shaw Communications generated around $130 million of cash from operations, down 64.3% year over year. Free cash flow in the reported quarter was negative $124.5 million compared with $98 million in the year-ago quarter.

At the end of the first quarter of fiscal 2013, Shaw Communications had cash and marketable securities of $13.3 million compared with $422 million at the end of fiscal 2012. At the end of the reported quarter, Shaw Communications had $5,165.3 million in outstanding debt compared with $5,201.4 million at the end of fiscal 2012. Debt-to-capitalization ratio at the end of the first quarter of fiscal 2013 was 0.53 compared with 0.54 at the end of fiscal 2012.

Subscribers Statistics

As on November 30, 2012, Basic Cable customer base was 2,166,536, reflecting a net reduction of 23,912 customers in the previous quarter. Internet customer base stood at 1,902,385, reflecting quarterly net addition of 5,956 customers. Digital phone lines were 1,362,617, reflecting a year-over-year net addition of 17,345 lines. DTH customer base was 906,002, representing a quarterly net reduction of 4,021 customers.

Cable Segment

Quarterly revenue was $825.2 million, up 2.1% year over year. Strong revenue growth was attributable to subscriber addition and rate increases. Quarterly operating income before amortization was $404 million, up 5% year over year.

Satellite Segment

Quarterly total revenue of $218.3 million was up 2.4% year over year. The segment’s quarterly operating income before amortization was $75.4 million, up 7.2% from the year-ago quarter.

Media Segment

Quarterly total revenue was $325.4 million, up 6.7% year over year. Operating income before amortization was $133.6 million, up 9.2% year over year.

Dividend Hike

The Board of Directors of Shaw Communications has increased annual dividend rate to $1.02 on its Class B Non-Voting Participating Shares and $1.0175 on its Class A Participating Shares. This represents an increase of 5% or $0.05 per share.

Our Recommendation

Currently, Shaw Communications has a short-term Zacks Rank #2 (Buy). Moreover, considering the fundamentals, we retain a long-term Outperform recommendation. This was primarily based on the company’s improving EBITDA margin and free cash flow due to the discontinuation of promotional activities. Moreover, Shaw Communications has launched “Shaw Go”, - an innovative TV Everywhere service, which is available on Apple Inc. (AAPL - Analyst Report) developed iPad 2 and iPhone 5.