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TELUS (TU) Q4 Earnings Miss Estimates, Revenues Increase Y/Y

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TELUS Corporation (TU - Free Report) reported mixed fourth-quarter 2021 results, wherein the bottom line missed the Zacks Consensus Estimate, but the top line surpassed the same. Expanded service offerings, accelerated broadband network investments, solid operating momentum, positive cash flow and augmented fiber footprint on the back of an accretive subscriber base aided TELUS’ performance. In response to the results, shares of this Canada-based telco inched up 0.7% to close the trading session at $24.69 on Feb 10.

Net Income

Net income attributable to common shares in the December quarter surged 147.7% year over year to C$644 million or C$0.47 per share. The year-over-year improvement was driven by higher EBITDA and operating income. However, it was partly offset by increased depreciation and amortization charges, and higher income taxes.

Quarterly adjusted net income was C$331 million or C$0.23 per share ($262.6 million or 18 cents per share) compared with C$289 million or C$0.22 per share in the prior-year quarter. The bottom line missed the Zacks Consensus Estimate by 2 cents.

In 2021, net income attributable to common shares came in at C$1,655 million or C$1.23 per share compared with C$1,207 million or C$0.95 per share in 2020. Adjusted net income for the year was C$1,430 million or C$1.07 per share compared with C$1,361 million or C$1.06 per share in 2020.

TELUS Corporation Price, Consensus and EPS Surprise

TELUS Corporation Price, Consensus and EPS Surprise

Revenues

Encouraged by its business' resiliency post the COVID-19 mayhem, quarterly total operating revenues jumped 20% year over year to C$4,872 million ($3,865 million). The growth reflects higher demand for premium bundled offerings and strong customer retention efforts that resulted in total customer net additions of 272,000 in the reported quarter, up 19,000 from last year. Higher Internet and data service margins, along with an increased contribution from Digitally-led customer experiences – TELUS International segment and growth in mobile equipment margins acted as major tailwinds as well.

A robust asset mix focused on technology-oriented verticals with best-in-class digital capabilities and superior service offerings across wireless and fiber broadband networks acted as key driving factors. Also, accelerated broadband build, augmented fiber footprint and copper-to-fiber migrations supported by disciplined cost-controlling measures continue to spur TELUS’ operating momentum and long-term profitability. The top line, however, surpassed the consensus estimate of $3,493 million.

In 2021, operating revenues totaled C$17,258 million compared with C$15,463 million in 2020.

Quarterly Segmental Results

TELUS reports its revenues in two segments — TELUS technology solutions (TTech) and Digitally-led customer experiences – TELUS International (DLCX).

In the fourth quarter, TTech revenues grew 17.9% year over year to C$4,237 million, primarily driven by higher mobile network revenues followed by solid performance across fixed data and health services. However, it was partly offset by a decline in fixed voice services revenues and soft fixed equipment revenues. Mobile network revenues rose 5% to C$1,591 million due to increasing mobile phone ARPU and subscriber growth.

Fixed voice services revenues declined 5% to C$207 million from C$218 million in the year-ago period. This reflects the ongoing decline in legacy voice revenues from technological substitution and price plan changes. Health services revenues increased 18.5% to C$141 million, driven by the positive impact of business acquisitions, higher usage of value-added services and growth in health benefits management services.

The segment’s adjusted EBITDA of C$1,348 million increased 6.7% over the same period a year ago, led by an increase in direct contribution from mobile and fixed products and services. Adjusted EBITDA margin came in at 35.2% compared with 35.1% in the year-ago quarter. Capital expenditures increased 47.3% to C$866 million.

Revenues from TELUS International (DLCX) soared 31.2% year over year to C$757 million. Operating revenues (arising from contracts with customers) rose 36% to C$638 million, primarily driven by business acquisitions within the tech and games sectors, along with organic growth in customers.

The segment’s adjusted EBITDA of C$169 million increased 14.6% from the year-ago quarter’s figure. Adjusted EBITDA margin was 22.5% compared with 25.8% in the prior-year quarter. Capital expenditures were up 72% to C$43 million.

TELUS PureFibre network covered more than 2.7 million premises at the end of fourth-quarter 2021, up from nearly 2.5 million premises in the year-ago quarter.

Other Details

EBITDA was C$1,882 million, up 40.8% year over year, driven by gain on disposition of financial solutions business. Adjusted EBITDA increased 7.6% year over year to C$1,517 million, driven by higher Internet and data service margins, higher fixed data service margins from accretive subscriber base, growth in mobile equipment margins, lower bad debt expenses and increased contribution from the TELUS International segment. The positive impact from business acquisitions was a driving factor as well. Adjusted EBITDA increased 7.6% year over year to C$1,517 million. Capital expenditures (excluding spectrum licenses) soared 48.3% to C$909 million on the back of increased 5G investments, fast-tracked investments in broadband build, enhanced product development and digitization to increase system capacity and higher purchase of equipment to support subscriber growth.

Cash Flow & Liquidity

In 2021, TELUS generated C$4,388 million of cash from operating activities compared with C$4,574 million in the year-ago period. Free cash flow for the same period plunged 45.9% to C$777 million. As of Dec 31, 2021, the company had C$723 million ($569.3 million) of net cash and temporary investments with C$17,925 million ($14,114 million) of long-term debt compared with the respective tallies of C$848 million and C$18,856 million.

2022 Outlook

TELUS expects operating revenues and adjusted EBITDA to grow in the range of 8-10%. Free cash flow is anticipated between $1 billion and $1.2 billion. The company is confident of boosting its operating momentum through end-to-end design and build capabilities while delivering premium digital customer experiences.

Moving Ahead

For 2022, TELUS expects to continue generating positive financial outcomes and strong customer growth. Backed by a robust capital structure, the company is confident of the long-term sustainability of its industry-leading dividend growth program. Solid EBITDA and value creation across health and agriculture businesses will support future dividend growth. Further, TELUS’ investment in 3500 MHz wireless spectrum enables it to deliver transformational, next-gen 5G connectivity.

This, in turn, will help in enhancing its competitive positioning to drive strong profitable customer growth supported by consistent strategic execution, a healthy balance sheet, strong cash flow outlook and customer service leadership position. It also remains committed to supporting its accelerated broadband expansion program on the back of an augmented Canadian market footprint.

Zacks Rank & Stocks to Consider

TELUS currently has a Zacks Rank #3 (Hold).

Few better-ranked stocks in the broader industry are NiSource Inc. (NI - Free Report) , CenterPoint Energy, Inc. (CNP - Free Report) and Entergy Corporation (ETR - Free Report) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Consensus Estimate for NiSource’s next-year earnings has remained stable at $1.44 per share over the past 60 days.

NiSource delivered a trailing four-quarter earnings surprise of 2.3%, on average. It has soared 26.5% in the past year. NI has a long-term earnings growth expectation of 6.7%.

The Zacks Consensus Estimate for CenterPoint Energy’s next-year earnings has been revised 2.2% upward over the past 60 days.

CenterPoint Energy delivered a trailing four-quarter earnings surprise of 25.5%, on average. Its shares have gained 29.2% in the past year. CNP has a long-term earnings growth expectation of 4.7%.

The Zacks Consensus Estimate for Entergy’s next-year earnings has been revised 0.3% upward over the past 60 days.

Entergy delivered a trailing four-quarter earnings surprise of 5.3%, on average. The stock has gained 12.2% in the past year. ETR has a long-term earnings growth expectation of 1%.

Conversion rate used:

C$1 = $0.793204 (period average from Oct 1, 2021 to Dec 31, 2021)

C$1 = $0.787391 (as of Dec 31, 2021)