Shaw Communications (SJR) Tops Q3 Earnings, Revenues Lag

Shaw Communications Inc. (NYSE:SJR) reported mixed financial results in the third quarter of fiscal 2016 (ended May 31, 2016), the bottom line beat the Zacks Consensus Estimate while the top line missed the same. This Zacks Rank #3 (Hold) company competes with cable multi-service operators like BCE Inc. (TO:BCE) , TELUS Corp. (NYSE:TU) and Rogers Communications Inc. (NYSE:RCI) in Canada.

Adjusted earnings per share came in at 37 cents in the quarter, up 17.8% year over year but exceeded the Zacks Consensus Estimate of 26 cents. GAAP net income from continuing operations was nearly $45.4 million, down 57.3% year over year.

Meanwhile, total revenue in the quarter declined 13.4% year over year to $987 million, missing the Zacks Consensus Estimate of $1004 million.

Quarterly operating income before restructuring costs and amortization was around $434.1 million, up 5.3% from the year-ago quarter. Quarterly operating margin stood at 43.3% compared with 46.4% in the year-ago quarter. In the reported quarter, Shaw Communications generated around $261.3 million of cash from operations, up 11.7% year over year. Free cash flow was around $142.3 million, down 28.9% year over year.

At the end of third quarter of fiscal 2016, Shaw Communications had cash and total outstanding debt of $248 million and $5,243.7 compared with $304.7 million and $5,357.7 million, respectively, at the end of fiscal 2015. The debt-to-equity ratio stood at 1.1, compared with 1.24 at the end of fiscal 2015.

Subscriber Statistics (As of May 31, 2016)

At the Consumer segment, the video cable customer base totaled 1,693,230, reflecting a net decrease of 27,482 customers in the quarter under review. Video satellite customer count increased by 3,847 to 811,988. Meanwhile, with the reduction of 8,760 customers in the quarter, the company's Internet base now stands at 1,772,293. Digital phone lines grossed 975,705, reflecting a sequential drop of 14,861 lines.

For the Business Network Service segment, the video cable customer base totaled 62,755, marking a net gain of 1,489 customers in the quarter. Video satellite customers decreased by 2,734 to 31,442. Meanwhile, the company gained 458 Internet customers in the reported quarter, taking the tally to 178,144. Digital phone lines grossed 295,480, demonstrating a sequential addition of 5,094 lines.

Recently, Shaw Communications acquired a 100% interest in Mid-Bowline Group Corp., the parent company of WIND Mobile. The enterprise is approximately valued at C$1.6 billion (around $1.16 billion). For this new Wireless segment, the total number of postpaid subscribers was 639,997 while the number of prepaid customers stood at 363,472.

Consumer Segment

Quarterly revenues grossed $731.3 million, down 1.5% year over year. Quarterly operating income before the restructuring costs and amortization came in at $334 million, down 2.7% year over year.

Business Network Services Segment

Quarterly total revenue from the division stood at $106.4 million, up 3.8% year over year. Meanwhile, the segment’s quarterly operating income before the restructuring costs and amortization was $51.6 million, up 4.8% year over year.

Business Infrastructure Services Segment

Quarterly total revenue stood at $67.2 million, up 36.5% year over year while operating income before the restructuring costs and amortization was $25.8 million, up 32% year over year.

Wireless Service Segment

Quarterly revenue from the newly acquired wireless segment stood at $103.2 million while operating income before the restructuring costs and amortization was $22.7 million.

Financial Outlook

For fiscal 2016, Shaw Communications expects operating income before the restructuring costs and amortization for Consumer, Business Network Services Business Infrastructure Services and Wireless Services, combined, to remain either flat or grow in low single digits over the fiscal 2015 figure. Meanwhile, consolidated capital investment for all divisions (including WIND) combined is projected to be around $938.6 million. For fiscal 2017, the figure is projected around $1 billion.

Latest Development

Shaw Communications announced the launch of SmartSecurity, a managed network security service aimed at Small and Medium sized business customers. Notably, the business services segment is a growing market for telecom operators. In this regard, the new service is expected to help Shaw Communications gain some ground in this segment.

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