Shaw Communications Inc. SJR reported fourth-quarter fiscal 2018 adjusted earnings from continuing operations of 30 cents per share, beating the Zacks Consensus Estimate by 3 cents. Moreover, total revenues of $1.02 billion were in line with the consensus mark.

Adjusted earnings surged 30% year over year to C$0.39 per share. Total revenues climbed 7.4% to C$1.34 billion, primarily driven by wireless service revenue growth.

Shares of Shaw Communications declined 1.3% to close at $18.43 on Oct 26. The stock has lost 19.3% year to date, underperforming industry’s decline of 15.8%.


 
 

Segment Details

Wireline revenues (81.4% of total revenues) increased 1.3% on a year-over-year basis to C$ 1.09 billion. Consumer revenues climbed 0.5% to $942 million, while Business revenues increased 6.6% to $145 million.

Shaw Communications expects its partnership with Comcast CMCSA, which not only covers broadband but also video, to drive growth in the wireline business. The company is deploying the latest DOCSIS 3.1 modem (XB6), which enables faster internet speeds. Moreover, its BlueSky platform now integrates YouTube seamlessly with live TV, video-on-demand and recorded content.

Shaw Communications’ WideOpen Internet 150 is now available across 99% of its Western Canadian cable footprint. During the quarter, the company launched Internet 300, the fastest Internet service in its history.
 

Shaw Communications Inc. Price, Consensus and EPS Surprise

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

 

Wireless revenues (18.7% of total revenues) surged 45.3% from the year-ago quarter to $250 million, primarily driven by higher post-paid revenue generating units (RGUs) or subscribers, and an improvement in average revenue per unit (ARPU).

Service revenues increased 31.5% to $167 million. Equipment revenues jumped 84.4% year over year to $83 million.

Shaw Communications continues to expand its wireless retail distribution network. Its Freedom Mobile is now expected to have approximately 600 retail locations operational in fiscal 2019.

Shaw Communications also launched Voice over LTE (VoLTE) across its network in a wide range of devices. Management expects approximately 800,000 Freedom customers to be able to use the technology before the end of December 2018.

Shaw Communications also increased spending related to the deployment of the 700 MHz spectrum, which was recently enabled in Calgary. The deployment will continue throughout fiscal 2019.

Subscriber/RGU Details

In the Wireline-Consumer segment, the video cable lost 33,990 subscribers in the three months ended Aug 31, 2018. Video satellite customer count declined 7,399. Phone lines lost 26,160 customers. Shaw Communications’ Wireline Internet business lost 3,481 customers in the quarter.

In the Wireline-Business Network Service segment, the video cable lost 77 customers in the quarter. However, Video satellite customers grew 1,947. Further, the company gained 1,734 Internet customers and 8,195 phone customers.

In the Wireless Segment, Shaw gained 84,882 post-paid subscribers. Post-paid customer base is now more than 1 million and total customer base is approximately 1.4 million. ARPU increased 9% year over year, fueled by customer demand for larger data plans.

The company also gained 132 pre-paid subscribers.

Operating Details

In fourth-quarter fiscal 2018, operating, general & administrative expenses increased 1.4% year over year to $776 million. Operating, general & administrative expenses as percentage of revenues decreased 340 basis points (bps) to 58.1%.

Notably, 460 employees exited the company in the quarter, due to the VDP program under Total Business Transformation (TBT) initiative. This led to operating cost reductions of approximately $23 million and capital cost reductions of approximately $5 million in the quarter.

Operating income before restructuring costs and amortization increased 16.9% year over year to $560 million in the reported quarter. Operating margin expanded 340 bps from the prior-year quarter to 41.9%.

Segment wise, Wireline operating income increased 15.7% to $369.4 million. Wireline segment operating margin expanded 590 bps to 47.5%, primarily due to lower employee and marketing related costs.

Wireless operating income jumped 33.3% to $44 million, primarily due to higher ARPU. Wireless segment operating margin contracted 160 bps to 17.6%, primarily due to margin pressure from significantly higher equipment sales.

Guidance

For fiscal 2019, Shaw Communications expects operating income before restructuring costs and amortization to grow between 4% and 6% over 2018.

Capital investments are expected to be approximately $1.2 billion, while free cash flow is likely to be roughly $500 million.

Management expects $140 million of operating and capital savings in fiscal 2019 related to TBT initiatives.

Zacks Rank & Other Stocks to Consider

Shaw Communications has a Zacks Rank #2 (Buy).

DISH Network DISH and The E.W. Scripps Company SSP are stocks worth considering in the broader consumer discretionary sector. Both the stocks sport Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

DISH is expected to report on Nov 8, while The E.W. Scripps Company is set to report on Nov 9.

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