A month has gone by since the last earnings report for Telus (TU - Free Report) . Shares have added about 3.7% 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 the most recent earnings report in order to get a better handle on the important drivers.
TELUS Q1 Earnings Beat Estimates, Revenues Increase Y/Y
TELUS reported solid first-quarter 2019 financial results with healthy performance across its wireless and wireline businesses. Both the top line and the bottom line increased year over year.
Net income for the quarter increased 4.4% year over year to C$428 million or C$0.71 per share ($321.9 million or 53 cents). EBITDA growth was partially offset by higher depreciation and amortization due to increase in asset base, resulting from investments in broadband technologies and business acquisitions as well as increased financing costs.
Adjusted net income was C$453 million or C$0.75 per share ($340.7 million or 56 cents) compared with C$435 million or C$0.73 per share in the year-ago quarter. The bottom line beat the Zacks Consensus Estimate by a penny.
Quarterly operating revenues increased 3.8% year over year to C$3,506 million ($2,636.7 million), driven by higher wireless and wireline data services revenue growth. The top line, however, lagged the Zacks Consensus Estimate of $2,641 million.
EBITDA was C$1,379 million, up 8.7% year over year backed by higher revenue growth and wireless equipment margins, growth in wireline data service margins, the implementation of IFRS 16 on certain expenses as well as EBITDA contribution from customer care and business services (CCBS) and TELUS Health businesses. However, this was partially offset by declines in wireline legacy voice and legacy data services. Adjusted EBITDA increased 8.6% year over year to C$1,415 million.
Operating revenues from Wireless increased 1.9% year over year to C$1,937 million ($1,456.7 million) driven by higher network and equipment revenues. Network revenues increased 1.4% to C$1,492 million driven by 4.9% subscriber growth, partially offset by decline in mobile phone ARPU. Equipment and other service revenues were C$427 million, up 3.9% year over year, mainly due to growth in higher-value smartphones in the sales mix and increase in revenues per handset. The segment’s adjusted EBITDA of C$917 million increased 8.4% from the prior-year quarter, reflecting higher network revenue growth driven by a larger customer base, lower employee benefits expense, higher equipment margins and the implementation of IFRS 16 on certain expenses. Adjusted EBITDA margin was 47.4% compared with 44.5% in the year-ago quarter. Capital expenditures decreased 2.7% year over year to C$177 million.
Wireline operating revenues increased 6.4% year over year to C$1,638 million ($1,231.9 million) driven by higher data services revenue growth, partially offset by decline in legacy voice and legacy data services revenues. Data services revenues were C$1,219 million, up 11.9%. This was attributable to higher CCBS revenues, owing to growth in business volumes resulting from both organic growth and business acquisitions, and increased Internet and improved data service revenues. Voice service (local and long distance) revenues were C$253 million, down 10%. Other service and equipment revenues were C$98 million, remaining stable year over year. The segment’s adjusted EBITDA of C$498 million increased 9% from the prior-year quarter figure. This was due to increase in contribution from CCBS business from organic growth, higher Internet margins, and improved TELUS Health margins inclusive of business acquisitions. Adjusted EBITDA margin was 30.4% compared with 29.7% in the year-ago quarter. Capital expenditures were
up 0.2% year over year to C$469 million.
Cash Flow and Liquidity
During the first quarter, TELUS generated C$790 million ($594.1 million) of cash from operating activities compared with C$838 million in the year-ago quarter. For the reported quarter, its free cash flow decreased 65.5% year over year to C$153 million ($115.1 million).
As of Mar 31, 2019, the Canadian telecommunications company had C$588 million ($440.3 million) of net cash and temporary investments, with C$14,434 million ($10,809.1 million) of long-term debt.
Conversion rate used:
C$1 = $0.752060 (period average from Jan 1, 2019 to Mar 31, 2019)
C$1 = $0.748861 (as of Mar 31, 2019)
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended downward during the past month.
At this time, Telus has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. Following the exact same course, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. 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 this revision indicates a downward shift. Notably, Telus has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.