It has been about a month since the last earnings report for Telus (
TU Quick Quote TU - Free Report) . Shares have added about 12.7% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Telus due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
TELUS’ Q3 Earnings Miss Estimates, Revenues Rise Y/Y TELUS reported mixed third-quarter 2020 results, wherein the top line beat the Zacks Consensus Estimate but the bottom line missed the same. Net Income
Net income in the September quarter declined 29.1% year over year to C$307 million or C$0.24 per share. This reflects multiple impacts of the COVID-19 pandemic, higher depreciation and amortization charges, declines in wireline legacy voice and data services as well as higher non-labor-related restructuring and other costs.
Adjusted net income was C$356 million or C$0.28 per share ($267.2 million or 21 cents per share) compared with C$458 million or C$0.39 per share in the prior-year quarter. The bottom line missed the Zacks Consensus Estimate by 3 cents. Revenues
Quarterly total operating revenues increased 7.7% year over year to C$3,981 million ($2,987.5 million). This reflects excellent execution that resulted in record-high customer growth of more than 277,000 new additions. The top line surpassed the consensus estimate of $2,887 million.
Segment Results TELUS Wireless revenues remained flat year over year at C$2,100 million, as growth in equipment and other service revenues were offset by a decline in network revenues. Network revenues fell 2.9% to C$1,532 million, reflecting a 5% decline in mobile phone ARPU. Equipment and other service revenues were C$542 million, up 7.5% year over year. This was driven by higher-value smartphones in the sales mix for gross additions and retention units. The segment’s adjusted EBITDA of C$961 million decreased 1.6% over the same period a year ago due to the impacts of the pandemic. Adjusted EBITDA margin was 45.6% compared with 46.5% in the year-ago quarter. Capital expenditures decreased 15.5% year over year to C$212 million. TELUS Wireline revenues grew 17% year over year to C$1,963 million, primarily driven by data services revenue growth. Data services revenues were C$1,557 million, up 23%. This was supported by a combination of higher revenues from the company’s diverse portfolio of solutions. Voice service (local and long-distance) revenues were C$222 million, down 9%. Other service and equipment revenues were C$108 million, up 13.7%. The segment’s adjusted EBITDA of C$495 million improved 1.6% from the year-ago quarter’s figure. This reflects the increased contribution from TELUS International (TI) as a result of the acquisition of Competence Call Center (CCC) and expanded services for customers. Adjusted EBITDA margin was 25.1% compared with 29% in the prior-year quarter. Capital expenditures were up 6.4% year over year to C$529 million. Other Details
Overall, EBITDA was C$1,390 million, down 3.1% year over year. This reflects multiple impacts of the pandemic, declines in wireline legacy voice and data services as well as higher employee benefits and other costs including support for business acquisitions. Adjusted EBITDA decreased 0.6% year over year to C$1,456 million.
Cash Flow & Liquidity
In the first nine months of 2020, TELUS generated C$3,541 million of cash from operating activities compared with C$3,098 million in the year-ago period. Free cash flow for the same period increased 52.7% year over year to C$1,217 million.
As of Sep 30, the company had C$621 million ($464.6 million) of cash and temporary investments with C$17,834 million ($13,343.5 million) of long-term debt. Guidance
Due to uncertainties stemming from the COVID-19 pandemic, TELUS withdrew its consolidated financial guidance for 2020.
Conversion rate used: C$1 = $0.750449 (period average from Jul 1, 2020 to Sep 30, 2020) C$1 = $0.748205 (as of Sep 30, 2020) How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates review.
Currently, Telus has an average Growth Score of C, a grade with the same score on the momentum front. Following the exact same course, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions looks promising. It's no surprise Telus has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.