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Telus (TU) Up 14.3% Since Last Earnings Report: Can It Continue?
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It has been about a month since the last earnings report for Telus (TU - Free Report) . Shares have added about 14.3% 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 the most recent earnings report in order to get a better handle on the important drivers.
TELUS Q1 Earnings Miss Estimates, Revenues Rise Y/Y
TELUS reported mixed first-quarter 2020 results, with the top line beating the Zacks Consensus Estimate and the bottom line missing the same.
Net Income
Net income in the March quarter decreased 18.2% year over year to C$350 million or C$0.28 per share, as EBITDA growth was more than offset by higher depreciation and amortization due to growth in the company’s capital assets from recent acquisitions, including Competence Call Center (CCC) and ADT Canada, as well as ongoing investments to support the expansion of its broadband footprint. First-quarter adjusted net income was C$400 million or C$0.32 per share ($298.2 million or 24 cents per share) compared with C$453 million or C$0.38 per share in the year-ago quarter. The bottom line missed the Zacks Consensus Estimate by a penny.
Revenues
Quarterly total operating revenues increased 5.4% year over year to C$3,694 million ($2,754 million), reflecting the company’s leadership in broadband network and excellent customer service. The top line surpassed the consensus estimate of $2,632 million.
Segment Results
Operating revenues in TELUS Wireless slipped 2% year over year to C$1,898 million ($1,415 million), as network revenue growth was more than offset by a decrease in equipment and other service revenues. Network revenues increased 1.3% to C$1,511 million, reflecting 5.6% growth in the subscriber base over the last 12 months, partly offset by declining mobile phone ARPU. Equipment and other service revenues were C$374 million, down 12.4% year over year. This reflects lower contracted volumes, including the impact of the COVID-19 pandemic, as customers reduced their shopping habits and as a significant number of physical sales channels were closed in the final weeks of March. The segment’s adjusted EBITDA of C$940 million increased 2.6% over the same period a year ago, reflecting higher network revenues driven by a larger subscriber base, higher equipment margins and savings from cost efficiency programs. Adjusted EBITDA margin was 49.5% compared with 47.4% in the year-ago quarter. Capital expenditures increased 9.6% year over year to C$194 million.
TELUS Wireline operating revenues increased 14.3% year over year to C$1,873 million ($1,396.4 million) driven by data services revenue growth, partly offset by a decline in legacy voice services revenues. Data services revenues were C$1,444 million, up 18.5%. This was driven by a combination of higher revenues from the company’s diverse portfolio of solutions, including TELUS International customer care and business services which included contribution from the acquisition of CCC, growth in business volumes from both expanded services and customer growth. Voice service (local and long distance) revenues were C$236 million, down 6.7%. Other service and equipment revenues were C$98 million, remaining stable. The segment’s adjusted EBITDA of C$535 million increased 7.2% from the year-ago quarter figure. This was driven by increased contribution from TELUS International customer care, expanded services for existing customers, growth in home and business smart technology and higher Internet margins. Adjusted EBITDA margin was 28.5% compared with 30.4% in the prior-year quarter. Capital expenditures were up 0.4% year over year to C$471 million.
Other Details
Overall EBITDA was C$1,409 million, up 2.2% year over year. This reflects growth in wireline data service margins and an increased EBITDA contribution from TELUS International customer care as well as higher wireless network revenues driven by a growing subscriber base. However, the momentum was partly offset by the impacts of the COVID-19 pandemic, mainly due to the travel restrictions and border closures mandated by various governments. Adjusted EBITDA increased 4.2% year over year to C$1,475 million.
Cash Flow & Liquidity
During the first quarter of 2020, TELUS generated C$1,177 million of cash from operating activities compared with C$790 million in the year-ago quarter. Free cash flow for the same period increased 256.2% year over year to C$545 million. As of Mar 31, 2020, the company had C$1,058 million ($746.5 million) of net cash and temporary investments with C$17,884 million ($12,618.5 million) of long-term debt, compared with the respective tallies of C$535 million and C$17,142 million at the end of the prior quarter.
Guidance Withdrawn
During these unprecedented times, TELUS has experienced incremental demand for some of its products and services due to physical distancing. However, the company is currently unable to predict the full range of positive and negative impacts of the crisis on its business and previously-issued guidance. As a result, TELUS has withdrawn its consolidated financial guidance for 2020. It intends to provide an update on the assumptions and guidance when it reports second quarter results at the end of July. Conversion rate used: C$1 = $0.745525 (period average from Jan 1, 2020 to Mar 31, 2020) C$1 = $0.705574 (as of Mar 31, 2020)
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -10.62% due to these changes.
VGM Scores
At this time, 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 top 40% 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.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Telus has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.
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Telus (TU) Up 14.3% Since Last Earnings Report: Can It Continue?
It has been about a month since the last earnings report for Telus (TU - Free Report) . Shares have added about 14.3% 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 the most recent earnings report in order to get a better handle on the important drivers.
TELUS Q1 Earnings Miss Estimates, Revenues Rise Y/Y
TELUS reported mixed first-quarter 2020 results, with the top line beating the Zacks Consensus Estimate and the bottom line missing the same.
Net Income
Net income in the March quarter decreased 18.2% year over year to C$350 million or C$0.28 per share, as EBITDA growth was more than offset by higher depreciation and amortization due to growth in the company’s capital assets from recent acquisitions, including Competence Call Center (CCC) and ADT Canada, as well as ongoing investments to support the expansion of its broadband footprint. First-quarter adjusted net income was C$400 million or C$0.32 per share ($298.2 million or 24 cents per share) compared with C$453 million or C$0.38 per share in the year-ago quarter. The bottom line missed the Zacks Consensus Estimate by a penny.
Revenues
Quarterly total operating revenues increased 5.4% year over year to C$3,694 million ($2,754 million), reflecting the company’s leadership in broadband network and excellent customer service. The top line surpassed the consensus estimate of $2,632 million.
Segment Results
Operating revenues in TELUS Wireless slipped 2% year over year to C$1,898 million ($1,415 million), as network revenue growth was more than offset by a decrease in equipment and other service revenues. Network revenues increased 1.3% to C$1,511 million, reflecting 5.6% growth in the subscriber base over the last 12 months, partly offset by declining mobile phone ARPU. Equipment and other service revenues were C$374 million, down 12.4% year over year. This reflects lower contracted volumes, including the impact of the COVID-19 pandemic, as customers reduced their shopping habits and as a significant number of physical sales channels were closed in the final weeks of March. The segment’s adjusted EBITDA of C$940 million increased 2.6% over the same period a year ago, reflecting higher network revenues driven by a larger subscriber base, higher equipment margins and savings from cost efficiency programs. Adjusted EBITDA margin was 49.5% compared with 47.4% in the year-ago quarter. Capital expenditures increased 9.6% year over year to C$194 million.
TELUS Wireline operating revenues increased 14.3% year over year to C$1,873 million ($1,396.4 million) driven by data services revenue growth, partly offset by a decline in legacy voice services revenues. Data services revenues were C$1,444 million, up 18.5%. This was driven by a combination of higher revenues from the company’s diverse portfolio of solutions, including TELUS International customer care and business services which included contribution from the acquisition of CCC, growth in business volumes from both expanded services and customer growth. Voice service (local and long distance) revenues were C$236 million, down 6.7%. Other service and equipment revenues were C$98 million, remaining stable. The segment’s adjusted EBITDA of C$535 million increased 7.2% from the year-ago quarter figure. This was driven by increased contribution from TELUS International customer care, expanded services for existing customers, growth in home and business smart technology and higher Internet margins. Adjusted EBITDA margin was 28.5% compared with 30.4% in the prior-year quarter. Capital expenditures were up 0.4% year over year to C$471 million.
Other Details
Overall EBITDA was C$1,409 million, up 2.2% year over year. This reflects growth in wireline data service margins and an increased EBITDA contribution from TELUS International customer care as well as higher wireless network revenues driven by a growing subscriber base. However, the momentum was partly offset by the impacts of the COVID-19 pandemic, mainly due to the travel restrictions and border closures mandated by various governments. Adjusted EBITDA increased 4.2% year over year to C$1,475 million.
Cash Flow & Liquidity
During the first quarter of 2020, TELUS generated C$1,177 million of cash from operating activities compared with C$790 million in the year-ago quarter. Free cash flow for the same period increased 256.2% year over year to C$545 million. As of Mar 31, 2020, the company had C$1,058 million ($746.5 million) of net cash and temporary investments with C$17,884 million ($12,618.5 million) of long-term debt, compared with the respective tallies of C$535 million and C$17,142 million at the end of the prior quarter.
Guidance Withdrawn
During these unprecedented times, TELUS has experienced incremental demand for some of its products and services due to physical distancing. However, the company is currently unable to predict the full range of positive and negative impacts of the crisis on its business and previously-issued guidance. As a result, TELUS has withdrawn its consolidated financial guidance for 2020. It intends to provide an update on the assumptions and guidance when it reports second quarter results at the end of July.
Conversion rate used:
C$1 = $0.745525 (period average from Jan 1, 2020 to Mar 31, 2020)
C$1 = $0.705574 (as of Mar 31, 2020)
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -10.62% due to these changes.
VGM Scores
At this time, 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 top 40% 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.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Telus has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.