A month has gone by since the last earnings report for Telus (TU - Free Report) . Shares have added about 3.3% 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 Surpass Estimates, Revenues Miss
TELUS reported mixed third-quarter 2019 financial results, wherein the bottom line surpassed the Zacks Consensus Estimate but the top line missed the same.
In the September quarter, net income decreased 2.3% year over year to C$433 million or C$0.72 per share ($327.9 million or 55 cents) as EBITDA growth was primarily offset by higher depreciation and amortization charges due to rise in the company’s asset base, including investments in broadband technologies and business acquisitions.
Adjusted net income was C$458 million or C$0.76 per share ($346.9 million or 58 cents) compared with C$445 million or C$0.74 per share in the year-ago quarter. The bottom line beat the Zacks Consensus Estimate by 2 cents.
Quarterly total operating revenues declined 2% year over year to C$3,697 million ($2,800 million) due to lower revenues at TELUS Wireless. The top line lagged the consensus estimate of $2,875 million.
Segments in Detail
Operating revenues at Wireless segment decreased 2.9% year over year to C$2,099 million ($1,589.7 million). This was due to lower non-recurring equity income attributable to the sale of TELUS Garden in the third quarter of 2018. Network revenues increased 2% to C$1,578 million driven by 5.5% subscriber growth, partly offset by decline in mobile phone ARPU. Equipment and other service revenues were C$504 million, down 1.6% year over year, mainly due to lower volumes.
The segment’s adjusted EBITDA of C$976 million increased 7% from the prior-year quarter, reflecting higher network revenue growth driven by a larger subscriber base, savings from cost reduction programs, and the implementation of IFRS 16. Adjusted EBITDA margin was 46.5% compared with 43.9% in the year-ago quarter. Capital expenditures increased 15.1% year over year to C$251 million.
Wireline segment’s operating revenues remained almost flat year over year at C$1,678 million ($1,270.9 million), indicating data services revenue growth, partly offset by decline in legacy voice service revenues. Data services revenues were C$1,266 million, up 8.4%. The increase was driven by higher customer care and business services (CCBS) revenues, mainly due to growth in business volumes, which reflected higher revenue per customer. Voice service (local and long distance) revenues were C$244 million, down 8.6%.
Other service and equipment revenues were C$95 million, down 2.1%. The segment’s adjusted EBITDA of C$487 million increased 10.9% from the prior-year quarter figure. This was due to greater contribution from CCBS business, higher Internet margins, and higher health margins. Adjusted EBITDA margin was 29% compared with 27.6% in the year-ago quarter. Capital expenditures were down 8.6% year over year to C$497 million.
Overall EBITDA was C$1,434 million, up 6.3% year over year due to higher wireless network revenue growth, increase in wireline data service margins, higher EBITDA contribution from CCBS and health businesses, and the effects of implementation of IFRS 16. However, the momentum was partly offset by decline in wireline legacy voice and legacy data services, and decrease in EBITDA contribution from legacy business services. Adjusted EBITDA increased 8.3% year over year to C$1,463 million.
Cash Flow & Liquidity
During the first nine months of 2019, TELUS generated C$3,098 million of cash from operating activities compared with C$3,110 million in the year-ago period. For the same period, free cash flow declined 25.9% year over year to C$797 million.
As of Sep 30, 2019, the Canadian telecommunications company had C$370 million ($279.4 million) of net cash and temporary investments, with C$16,140 million ($12,188.6 million) of long-term debt.
Conversion rate used:
C$1 = $0.757364 (period average from Jul 1, 2019 to Sep 30, 2019)
C$1 = $0.755182 (as of Sep 30, 2019)
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended downward during the past month. The consensus estimate has shifted -6.25% due to these changes.
Currently, Telus has an average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. However, 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 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 this revision has been net zero. Notably, Telus has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.