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Shaw Communications (SJR) Beats on Q3 Earnings & Revenues

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Shaw Communications Inc. (SJR - Free Report) reported third-quarter fiscal 2018 adjusted earnings from continuing operations of 32 cents per share, beating the Zacks Consensus Estimate by a nickel.

Including impairment (related to the company’s investment in Corus Entertainment) and restructuring charges of C$297 million, the company reported loss of C$91 million. The company incurred charges of C$13 million related to Total Business Transformation (“TBT”) initiative and Voluntary Departure Program (“VDP”) restructuring programs.
Total revenues from continuing operations were $1.01 billion, much better the Zacks Consensus Estimate of $980 million.

In Canadian dollars, total revenues were C$1.30 billion, up 6.9% year over year primarily driven by strong growth in Wireless revenues.

Shaw Communications Inc. Price, Consensus and EPS Surprise

Shaw Communications Inc. Price, Consensus and EPS Surprise | Shaw Communications Inc. Quote


Segment Details (Revenues in Canadian Dollars)

Wireline revenues remained unchanged on a year-over-year basis to C$1.06 billion. Consumer revenues declined 0.8% to C$923 million, fully mitigated by 6% increase in Business revenues, which totalled $141 million.

In the consumer segment, higher revenues generated by annual rate adjustments and incremental Internet RGUs were fully offset by the impact of reductions in cable Video and Phone RGUs. Moreover, customer downward migration in video packages on a year-over-year basis also hurt top-line growth.

However, business revenue growth was driven by solid sales of the SmartSuite products, specifically Smart WiFi, Smart Voice and Smart Security.

Wireline RGUs declined by approximately 14,400 in the quarter compared to a gain of approximately 44,400 in the third quarter of 2017. The quarterly results include seasonally strong Satellite RGU gains of 9,600, which were more than fully offset by Internet, Video and Phone RGU losses.

Shaw Communications is deploying the latest DOCSIS 3.1 modem (XB6), which enables faster internet speeds. The company’s BlueSky platform continues to improve and now integrates YouTube seamlessly with live TV, video-on-demand and recorded content. These are expected to boost Internet subscriber base, going forward.

Wireless revenues surged 53.9% from the year-ago quarter to $237 million, primarily driven by higher post-paid revenue generating units (RGUs) and an improvement in average revenue per unit (ARPU).

Service revenues increased 27% to $155 million. Equipment revenues jumped to $82 million from $32 million reported in the year-ago quarter.

In the reported quarter, the company added approximately 46,659 net Wireless RGUs, more than double the 19,974 net additions achieved in the year-ago quarter.

The growth reflects solid customer demand for Apple’s (AAPL - Free Report) iPhone as well as premium Samsung devices along with attractive device pricing and packaging options. Average Revenue Per User (ARPU) increased 7.5% on a year-over-year basis to $39.84.

Shaw Communications continues to actively roll out its 700 MHz spectrum that further improves the network quality and will enable additional features such as VoLTE, going forward.

Moreover, distribution agreement with Walmart (WMT - Free Report) will expand the company’s wireless products in approximately 140 Walmart locations. Management expects Freedom Mobile to be available at roughly 600 retail locations by early 2019.

Shaw Communications recently completed operational trial with Loblaws’ ‘The Mobile Shop’ in fifteen stores successfully. The company expects to launch Freedom Mobile to nearly 100 stores in Ontario, Alberta and British Columbia.

Operating Details

In third-quarter fiscal 2018, operating, general & administrative expenses increased 6.8% year over year to C$753 million. Operating, general & administrative expenses as percentage of revenues decreased 10 basis points (bps) to 57.9%.

Operating income before restructuring costs and amortization increased 7% on a year-over-year basis to C$547 million. Operating margin also expanded 10 bps from the prior-year quarter to 42.1%.

Segment wise, Wireline operating income increased 3.4% to C$485 million. Wireline segment operating margin expanded 150 bps to 45.6%, primarily due to cost reductions related to VDP.

Wireless operating income jumped 47.6% to C$62 million. Wireless segment operating margin contracted 110 bps to 26.2%.

Financial Outlook

Shaw Communications does not anticipate TBT restructuring costs to exceed C$450 million in fiscal 2018.

Management reiterated fiscal 2018 guidance. Operating income before restructuring costs and amortization is anticipated to grow 5% to C$2.1 billion over fiscal 2017.

Capital investments are expected to be approximately C$1.38 billion, while free cash flow is likely to be roughly C$375 million.

Zacks Rank & Key Pick

Shaw Communications carries a Zacks Rank #4 (Sell).

Cable One (CABO - Free Report) is a stock worth considering in the same sector. The stock has Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Long term earnings growth rate for Cable One is currently pegged at 3%.

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