Shaw Communications (SJR) Q1 Earnings: What's in Store?

Shaw Communications IncSJR is scheduled to release first-quarter fiscal 2018 (ending Nov 30, 2017) results, before the opening bell on Jan 11.

In two of the previous four quarters, the company's bottom line met with the Zacks Consensus Estimate. However, earnings lagged the Zacks Consensus Estimate in one of the quarters, with an average miss of 9.78%.

Let's see how things are shaping up prior to this announcement.

Factors at Play

Shaw Communications operates in a highly competitive Canadian wireless market with incumbents like Rogers Communications Inc RCI , TELUS Corp TU and BCE Inc BCE . Stiff competition has resulted in loss in video, Internet and landline phone businesses.

Rolling out of new brands, advertising promotions to lure subscribers and technological advancements are likely to escalate expenses. The combined costs will adversely impact margins.

Moreover, the company's cash and liquidity position are a major concern. In the fourth quarter of fiscal 2017, Shaw Communications generated $185.6 million from continued operations, down 19.7% year over year. Free cash flow was $1.6 million, reflecting a substantial decline of 77.8% year over year. The downside was caused by higher planned capital expenditures and the loss of free cash flow in the prior-year quarter by the former Media division, sold on Apr 1, 2016. This was partially offset by lower cash taxes and higher dividends from equity accounted associates. At the end of fiscal 2017, Shaw Communications had cash and total outstanding debt of $405.6 million and $3,440 compared with $545.5 million and $7,186.3 million, respectively, at the end of Aug 2016. The debt-to-capitalization ratio was 0.41 compared with 0.48 at the end of fiscal 2016. The accumulating debt and declining cash flows may act as headwinds for the company's long-term growth and is likely to escalate expenses.

Plagued by such headwinds, the company's shares have gained 0.2% but failed to surpass the industry 's rally of 2.2% over the past three months.

On the flip side, Shaw Communications' recent strategic business initiatives look impressive. These include the sale of data center operations - ViaWest - to Peak 10 Holding Corp and the utilization of the net proceeds from the sale for the purchase of wireless spectrums from Quebecor Media. The company's rating outlook upgrade by Moody's Investor Services was a major positive. The company has positioned itself as a pure-play Canadian telecom company with the divesture of its unit - Shaw Media - to Corus Entertainment. The company's venture into the Canadian wireless market with the acquisition of a 100% interest in Mid-Bowline Group Corp (the parent company of WIND Mobile Corp) is likely to pay off.

It is to be seen whether the company can maintain last quarter's massive user gain in the upcoming quarterly results. In fourth-quarter 2017, video cable customer base in the Consumer segment totaled 1,671,277, reflecting a net addition of 7,567 subscribers. In the Wireless Segment, postpaid customer base totaled 764,091 reflecting a net addition of 29,089 customers in the reported quarter. The prepaid section gained 11,925 customers taking the total to 383,082 customers.

Earnings Whispers

Our proven model does not conclusively show that Shaw Communications is likely to beat the Zacks Consensus Estimate this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. Unfortunately, that is not the case here as elaborated below.

Zacks ESP: Shaw Communications has an Earnings ESP of +2.00%. This is because the Most Accurate estimate is at 26 cents while the Zacks Consensus Estimate is pegged at 25 cents. You can uncover the best stocks to buy or sell before they're reported with the Earnings ESP Filter .

Zacks Rank: Shaw Communications has a Zacks Rank #5 (Strong Sell).

Notably, we caution against stocks with a Zacks Rank #4 (Sell) or 5 going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Shaw Communications Inc. Price and EPS Surprise

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

Key Pick

Charter Communications Inc CHTR from the broader Consumer Discretionary sector has the right combination of elements to post an earnings beat when it expectedly posts fourth-quarter 2017 results on Feb 15. Charter has an Earnings ESP of +0.97% and a Zacks Rank #3. You can see the complete list of today's Zacks #1 Rank stocks here .

The company's sales and earnings estimates for fourth-quarter 2017 are estimated to increase 3.1% and 166.7%, respectively.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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