Shaw Communications Beats in 1Q - Analyst Blog

Shaw Communications Inc. (SJR) has declared the financial results of its first quarter of fiscal 2011 (ended November 30, 2010), which beat the Zacks Consensus Estimate. The company provided a strong financial outlook and also raised the dividend on its common stock.

Quarterly net income was $20.3 million or 4 cents per share compared to a net income of $111.7 million or 25 cents in the prior-year quarter. However, in the reported quarter, Shaw Communications incurred around $140.5 million of special charges. Excluding this, the adjusted first quarter EPS of 36 cents was above the Zacks Consensus Estimate of 34 cents.

Quarterly total revenue of approximately $1.09 billion was up 19.1% year-over-year. The year-over-year improvement was primarily due to customer growth and rate increases in the Cable and Satellite segments. First quarter total revenue of $1.09 billion was also above the Zacks Consensus Estimate of $1.04 billion.

Quarterly operating income before amortization was $478 million, almost  the same year-over-year. However, excluding one-time CRTC Part II fee recovery, operating income before amortization increased 18.4% year-over-year.

In the reported quarter, Shaw Communications generated $62.5 million of cash from operations compared to $327.9 million in the year-ago quarter. Free cash flow (cash flow from operations excluding stock based compensation expenses less capital expenditures) in the same quarter was $146.5 million compared to $162.1 million in the year-ago quarter.

At the end of the first quarter of fiscal 2011, Shaw Communications had $42.5 million of cash & cash equivalents on its balance sheet compared to $212.4 million at the end of fiscal 2010. At the end of the same quarter, Shaw Communications had $5,449 million of outstanding debt on its balance sheet compared to $3,902.6 million at the end of fiscal 2010. Debt-to-capitalization ratio, at the end of the first quarter of fiscal 2011 was 0.65 compared to 0.59 at the end of fiscal 2010.

Subscribers Statistics

At the end of the first quarter of fiscal 2011, Basic Cable customer base was 2,326,766, net year-over-year reduction of 7,542. Digital customer base was 1,713,135, net year-over-year addition of 62,216.

Internet customer base was 1,837,618, net year-over-year addition of 18,752. Digital phone lines were 1,146,148, net year-over-year addition of 49,842. DTH customer base was 904,257, net year-over-year reduction of 1,539.

Cable Segment

Quarterly revenue was $765.4 million, up 6.8% year-over-year. Subscriber growth through new acquisitions and rate increases are the primary reasons for revenue growth.

Quarterly operating income before amortization was $351.3 million, down 8.5% year-over-year.

Satellite Segment

Quarterly total revenue of $208.2 million was up 2.7% year-over-year.  Within this segment, DTH revenue was $187.2 million, up 3.1% year-over-year and Satellite Service revenue was $21 million, down 0.7% year-over-year. Quarterly operating income before amortization for the whole segment was $70.2 million, down 26.6% year-over-year.

Media Segment

This is a new division formed after Shaw Communications acquired all of the broadcasting assets of Canwest Global. Quarterly total revenue was $126.7 million.

Increase in Dividend

The Board of Directors has decided to increase the equivalent dividend rate by 5%. The new dividend rate for the company's Class B non-voting participating shares will be 93 cents and for the Class A participating shares will be 92 cents. The rise in dividend rate will commence on March 30, 2011.

Future Financial Outlook

Management predicted that for fiscal 2011, free cash flow for the company's core cable and satellite segment will be $550 million. The newly formed Media segment will generate $75 million of free cash flow. However after adjusting the estimated 2011 CRTC benefit obligation cash funding, the consolidated free cash flow of Shaw Communications in fiscal 2011 will be approximately $600 million.

Management also declared that the company will invest around $150 million - $200 million during fiscal 2011 on its Wireless initiative. Shaw Communications is now expecting to start deploying wireless networks in early 2012, approximately 3 months later than its previous forecast.

Our Recommendation

Shaw Communications mainly competes with Rogers Communications Inc. (RCI). We maintain our long-term Neutral recommendation for Shaw Communications. Currently it is a short-term Zacks #3 Rank (Hold) stock.

 
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