Shaw Communications (SJR) Q2 Earnings In Line, Revenues Lag

Shaw Communications Inc. (NYSE:SJR) reported mixed financial results for the second quarter of fiscal 2017 (ended Feb 28, 2017) wherein the bottom line matched the Zacks Consensus Estimate while the top line missed the same.

Adjusted earnings per share came in at 23 cents in the reported quarter. Net income was $111.13 million, reflecting a decrease of 10.4% from $123.98 million in the second quarter of fiscal 2016.

Total revenue came in at $986 million, reflecting an increase of 13.3% from $829 million in the year-ago quarter. However, the top line lagged the Zacks Consensus Estimate of $1,005 million

Operating Metrics

Second-quarter fiscal 2017 operating income before restructuring costs and amortization was $408.24 million, up 7.6% from $379.51 million in the fiscal second quarter of 2016. Operating margin came at 41.4%, down from 43.6% a year ago.

Cash Flow

In the second quarter of fiscal 2017, Shaw Communications generated $320.54 million of cash from continued operations compared with $274.43 million in the prior-year quarter. Free cash flow came in at $111.13 million versus $89.96 million in the year-ago quarter, reflecting an increase of 23.5%. Free cash flow increased on higher consolidated operating income before restructuring costs and amortization.

Liquidity

At the end of second-quarter fiscal 2017, Shaw Communications had cash and total outstanding debt of $468.72 million and $4,272.91 compared with $306.18 million and $4,033.26 million, respectively, at the end of Aug 2016.

Subscriber Statistics (As of Feb 28, 2017)

At the Consumer segment, the video cable customer base totaled 1,650,789,reflecting a net reduction of 7,124customers in the quarter under review. Video satellite customer count decreased 4,611to 770,294. Meanwhile, with the addition of 13,466customers in the quarter, the company's Internet base now stands at 1,818,072. Digital phone lines grossed 931,893, reflecting a sequential reduction of 7,025lines.

For the Business Network Service segment, the video cable customer base totaled 53,475, marking a net loss of 4,480 customers in the quarter. Video satellite customers increased by 1,041 to 32,000. Further, the company lost 3,856 Internet customers, taking the tally to 173,144. Digital phone lines grossed 312,384, reflecting a sequential addition of 5,692 lines.

In the Wireless Segment, the postpaid customer base totaled 714,917, marking a net addition of 33,582 customers from the previous quarter. The prepaid section however lost 155 customers from the prior-year quarter, taking the total to 371,268 customers.

The period, however, ended with 6,828,236 customers, inclusive of 1,086,185 Wireless subscribers. Consumer and Business Network Services saw a combined 6,897 RGU (revenue generating unit) decline in the quarter, marking a significant improvement from 51,495 RGU losses in the second quarter of fiscal 2016.

Consumer Segment

Quarterly revenues grossed $705.35 million in the fiscal second quarter, down 0.1% year over year from $706.10 million. Quarterly operating income before restructuring costs and amortization came in at $304.67 million, exactly the same as in the year-ago quarter. Operating margin was 43.2%, up from 43.1% in the second quarter of fiscal 2016.

Business Network Services Segment

Quarterly total revenue from the division was $110.38 million, up 6.6% year over year from $103.57 million. The segment’s quarterly operating income before restructuring costs and amortization was $55.19 million, up 10.6% year over year from $49.89 million. Operating margin came in at 50.0%, up from 48.2% from the second quarter of fiscal 2016.

Business Infrastructure Services Segment

Quarterly total revenue was $68.79 million, up 2.2% year over year from $67.28 million. Operating income before restructuring costs and amortization was $26.46 million, up 6.1% year over year from $24.95 million. Operating margin for the second quarter of fiscal 2017 was 38.5%, up from 37.1% in the comparable quarter a year ago.

Wireless Service Segment

Quarterly revenues from the newly acquired wireless segment was $105.84 million in the second quarter of fiscal 2017 while operating income before restructuring costs and amortization was $21.92 million. Operating margin came in at 20.7%.

Financial Outlook

The fiscal 2017 guidance remains the same as previously issued by Shaw Communications. Operating income before restructuring costs and amortization is expected to range between $2.125 billion and $2.175 billion and free cash flow is expected to exceed $400 million. Consolidated capital investment targets also remain unchanged from the previously provided guidance of $1.3 billion for the year.

Shaw Communications operates in a highly competitive wireless market with incumbents like Rogers Communications Inc. (NYSE:RCI) , TELUS Corp. (NYSE:TU) and BCE Inc. (TO:BCE) . The company’s operation in a highly competitive wireless market led to losses in its video, Internet and landline phone business. The company currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Notably, shares of Shaw Communications underperformed the Zacks categorized Cable TV industry’s growth over the past three months. The stock registered growth of 2.9% failing to beat the industry’s growth of 9.2%.

The Best & Worst of Zacks

Today you are invited to download the full, up-to-the-minute list of 220 Zacks Rank #1 "Strong Buys" free of charge. From 1988 through 2015 this list has averaged a stellar gain of +25% per year. Plus, you may download 220 Zacks Rank #5 "Strong Sells." Even though this list holds many stocks that seem to be solid, it has historically performed 6X worse than the market. See these critical buys and sells free >>