A month has gone by since the las t earnings report for Shaw Communications (SJR). Shares have added about 2.1% in that time frame, underperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Shaw 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 recen t earnings report in order to get a better handle on the important catalysts.
Shaw Communications Q1 Results Drive on Wireless Growth
Shaw Communications reported first-quarter fiscal 2019 adjusted earnings from continuing operations of 28 cents per share, beating the Zacks Consensus Estimate by 3 cents. Moreover, total revenues of $1.04 billion comfortably beat the consensus mark of $974 million.
Adjusted earnings surged 63.6% year over year to C$0.36 per share. Total revenues climbed 8.8% to C$1.36 billion, primarily driven by wireless service revenue growth. Segment Details
Wireline revenues (79.9% of total revenues) increased 0.7% on a year-over-year basis to C$ 1.08 billion. Consumer revenues remained almost unchanged at $936 million, while Business revenues increased 5% to $147 million.
Shaw Communications expects its partnership with Comcast, which not only covers broadband but also video, to drive growth in the wireline business. The company has deployed Comcast's XB6 Advanced WiFi modem, which enables faster Internet speed at home.
In early 2019, Shaw Communications will start offering additional internet protocol (IP) services such as xFi and WiFi extenders. The company will also begin offering IPTV service to customers.
Wireless revenues (20.1% of total revenues) surged 59.6% from the year-ago quarter to $273 million, primarily driven by higher post-paid revenue generating units (RGUs) or subscribers, and an improvement in average billing per subscriber unit (ABPU) to $41.99, up 12%.
Service revenues increased 31.5% to $167 million. Equipment revenues jumped 140.9% year over year to $106 million.
The company continues to deploy 700 MHz spectrum, which is now approximately 25% complete. The deployment of this low band spectrum improves customer experience by providing far-reaching coverage and stronger indoor wireless reception.
Voice over LTE (VoLTE) is now enabled on 35 devices on Freedom's network and is available to almost 800,000 subscribers.
The company completed the launch of 140 new retail locations with Walmart. It is now operating in 240 national retail locations across its footprint with Loblaws', "The Mobile Shop" and Walmart on a combined basis. Freedom Mobile now has 600 operational retail locations. Subscriber/RGU Details
In the Wireline-Consumer segment, the video cable lost 23,768 subscribers in the three months ended Nov 30, 2018. Video satellite customer count declined 28,893. Phone lines lost 15,957 customers. However, Shaw Communications' Wireline Internet business gained 5,606 customers in the quarter.
In the Wireline-Business Network Service segment, the video cable lost 254 customers in the quarter. However, Video satellite customers grew 558. Further, the company gained 1,248 Internet customers and 8,649 phone customers.
In the Wireless Segment, Shaw Communications gained 86,067 post-paid subscribers. Post-paid customer base is now more than 1.1 million and total customer base is approximately 1.46 million. Average Revenue per Subscriber Unit (ARPU) increased 7% year over year to $38.64. Moreover, wireless post-paid churn improved from 1.64% to 1.28% on a year-over-year basis.
Increase in the post-paid customer base reflects continued customer demand for premium smartphones combined with device pricing and affordable packaging options, data centric plans, and improving network and customer experience.
However, the company lost 20,452 pre-paid subscribers. More than half of this loss was attributed to customer shift to higher value post-paid plans. Intensifying competition resulted in the loss of other half of customers.
Notably, the company's footprint now covers approximately 16 million people or almost half of the Canadian population. Operating Details
In first-quarter fiscal 2019, operating, general & administrative expenses increased 5.9% year over year to $810 million. Operating, general & administrative expenses as percentage of revenues decreased 170 basis points (bps) to 59.8%.
Notably, 220 employees exited the company in the quarter, due to the voluntary departure program (VDP) under the Total Business Transformation (TBT) initiative. This led to operating cost reductions of approximately $25 million and capital cost reductions of approximately $6 million in the quarter.
Operating income before restructuring costs and amortization increased 13.5% year over year to $545 million. Operating margin expanded 170 bps from the prior-year quarter to 40.2%.
Segment wise, Wireline operating income increased 11.9% to $500 million. Wireline segment operating margin expanded 460 bps to 46.2%, primarily due to positive effects of the voluntary departure program (VDP).
Wireless operating income jumped 36.4% to $45 million, primarily due to higher ABPU and ARPU. Wireless segment operating margin contracted 280 bps to 16.5%, primarily due to margin pressure from significantly higher equipment sales. Capital Expenditures & Free Cash Flow
In the first quarter, capital expenditures decreased by $68 million year over year to $271 million. Wireline capital spending decreased by roughly $18 million, primarily due to fewer network upgrades and reduced deployment of customer premise equipment. Wireless spending decreased by almost $50 million year over year.
Free cash flow was $164 million compared with $64 million in the year-ago quarter. Guidance
Shaw Communications expects to increase its market share in Western Canada, driven by its expanding network into new cities throughout 2019, including Victoria and Red Deer. The company expects to expand to an additional population of 1.3 million in fiscal 2019.
The company reiterated its operating income before restructuring costs and amortization guidance for fiscal 2019, which is expected to grow between 4% and 6% over fiscal 2018.
Capital investments are expected to be approximately $1.2 billion, while free cash flow is likely to be roughly $500 million.
Shaw Communications expects investments in the Wireless network, retail footprint expansion and deployment of low band spectrum to increase for the remainder of fiscal 2019.
Management expects $140 million of operating and capital savings in fiscal 2019 related to TBT initiatives.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended downward during the past month.
Currently, Shaw has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. Following the exact same course, the stock was allocated a grade of D on the value side, putting it in the bottom 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.
Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. Notably, Shaw has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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