TELUS (TU) Misses Q1 Earnings & Revenues, Confirms View

Leading Canadian telecom operator TELUS Corp. (NYSE:TU) reported weak financial results in the first quarter of 2016. Both revenues and earnings lagged the respective Zacks Consensus Estimate.

GAAP net income was approximately $275.6 million, down 9.1% year over year. GAAP earnings per share were 47 cents, down 6.8% year over year. First quarter adjusted earnings per share were 51 cents, a penny shy of the Zacks Consensus Estimate.

Total revenue came in at approximately $2,265 million, up 2.6% year over year but short of the Zacks Consensus Estimate of $2,420 million. Service revenues were $2,131.6 million, up 3.4% year over year. Equipment revenues totaled $125.4 million, down 5.5% year over year while Other revenues were $8.8 million, down 29.4% year over year.

Quarterly operating income was $466.6 million, down 5.7% year over year. Adjusted EBITDA (earnings before interest, tax, depreciation and amortization) was $866.1 million, up 3.1% year over year. Quarterly adjusted EBITDA margin was 38.2% compared with 38% in the prior-year quarter.

Cash Flow & Liquidity

During the first quarter of 2016, TELUS generated approximately $410.4 million of cash from operations, down 21.6% year over year. Free cash flow, in the reported quarter, was around $78.7 million, down a whopping 60.1% year over year.

TELUS exited the first quarter of 2016 with $478 million of cash & marketable securities and $10,587 million of outstanding debt compared with $167.1 million and $9,018.9 million, respectively, at the end of 2015. At the end of the reported quarter, the debt-to-capitalization ratio was 0.58 down from 0.61 at the end of 2015.

Segmental Results

Wireless revenues increased 1.8% year over year to approximately $1,251 million in the reported quarter. Wireless network revenues rose 2.5% year over year to roughly $1,146.7 million. Equipment and Other revenues dropped 5.8% to around $94 million. Intersegment network revenues were $10.2 million, flat year over year. Within Network revenues, data revenues improved 8.3% while Voice revenues slid 4.2%. Data revenues were 56% of total network revenues compared with 53% in the year-ago quarter.

Blended ARPU inched up 1.2% year over year to around $46. The monthly blended subscriber churn rate improved to 1.26% from 1.28% in the year-ago quarter. Postpaid customer churn rate was 0.97% compared with 0.91% in the year-ago quarter.

Net wireless subscriber lost in the reported quarter was 25,000. Postpaid customer net addition was 8,000, down a substantial 78.4% year over year. Meanwhile, prepaid customer net loss was 33,000, down 13.8% year over year. As of Mar 31, 2016, TELUS had 8.387 million wireless subscribers, up 1.2% year over year. Postpaid users were 7.315 million, up 2.4% while the prepaid user count was 1.072 million, down 6.3%.

Wireline revenues increased 3.9% year over year to approximately $1,059.2 million. Data service & equipment revenues came in at $723.9 million, up 10%. Voice revenues were $253.7 million, down 8.9%. Other services and equipment revenues were $42.3 million, up 3.6% and Other operational revenues were nearly $5.1 million, down 53.3%. Intersegment revenues grossed around $34.3 million, up 9.3% year over year.

During the reported quarter, TELUS added 11,000 TV subscribers, reaching a total count of 1,016,000 customers (up 8.4% year over year). High-speed Internet subscriber addition was 12,000, reaching 1.599 million (up 6.7% year over year). Total wireline subscriber count was 4.056 million, up 2.1% year over year.

2016 Guidance

The company maintained its 2016 guidance of revenues of C$12.750–C$12.875 billion and earnings per share between C$2.40 and C$2.56. TELUS projects capital expenditure of approximately C$2.65 billion. Wireless network revenues are projected in the range of C$6.425–C$6.490 billion whereas wireline revenues are likely to be between C$5.680 billion and C$5.735 billion.

Zacks Rank & Stocks to Consider

TELUS currently carries a Zacks Rank #1 (Strong Buy). Some other favorably-ranked stocks in the same sector are BCE Inc. (TO:BCE) , Telefonica SA (NYSE:TEF) and Telefonica Brasil SA (NYSE:VIV) . All three stocks currently sport a Zacks Rank #1.