TELUS (TU) Lets Down in Q2, Misses on Earnings & Revenues – August 14, 2017

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Leading Canadian telecom operator TELUS Corp. (TU Free Report) reported disappointing financial results in the first quarter of 2017, wherein both the top and bottom line missed the Zacks Consensus Estimate.

GAAP net income was approximately $282 million, down 7.2% year over year. GAAP earnings per share were 48 cents, down 8.6% year over year. Second-quarter adjusted earnings per share were 51 cents, missing the Zacks Consensus Estimate of 56 cents.

Total revenue came in at approximately $2,433.6 million, up 3.9% year over year while lagging the Zacks Consensus Estimate of $2,503 million. Service revenues were $2,298 million, up 4.7% year over year. Equipment revenues totaled $125 million, up 2.4% year over year while Other revenues were $10.5 million, down 56.3% year over year.

Quarterly operating income was $496.7 million, down 3.2% year over year. Adjusted EBITDA (earnings before interest, tax, depreciation and amortization) was $914.5 million, up 3.5% year over year. Quarterly adjusted EBITDA margin was 37.6% compared with 37.7% in the year-ago quarter.

In the second quarter of 2017, TELUS generated approximately $837.2 million of cash from operations, reflecting an increase of 26.2% year over year. Free cash flow, in the reported quarter was $193.3 million, increasing a whopping 106.3% year over year.

Segmental Results

Wireless  revenues increased 5% year over year to approximately $1,380.7 million in the reported quarter. Wireless network revenues rose 7.2% year over year to nearly $1,282.5 million. Equipment and Other revenues were around $91.5 million, flat year over year. Intersegment network revenues were $8.2 million, down 21.4% year over year.

Blended ARPU inched up 3.9% year over year to around $49.72. The monthly blended subscriber churn rate improved to 1.00% from 1.15% in the year-ago quarter. Postpaid customer churn rate was 0.79% compared with 0.90% in the year-ago quarter.

Net wireless subscriber gain in the reported quarter was 83,000. Postpaid customer net addition was 99,000. Prepaid customer net loss was 16,000. As of Jun 30, 2017, TELUS had 8.700 million wireless subscribers, increasing 3.2% year over year. Postpaid users were 7.753 million, increasing 5.1% while the prepaid user count was 0.947 million, down 9.9%.

Wireline revenues increased 2.5% year over year to approximately $1,099.6 million. Data service & equipment revenues came in at $777 million, up 5.6%. Voice revenues were $231.2 million, down 8.5%. Other services and equipment revenues were $40.9 million, flat year over year and other operational revenues were nearly $11.9 million, up a whopping 77.8%. Intersegment revenues grossed around $38.7 million, up 8.3% year over year.

During the reported quarter, TELUS added 5,000 TV subscribers, reaching a total count of 1,075,000 (up 4.5% year over year). High-speed Internet subscriber addition was 17,000, reaching a total count of 1,703,000 (up 5.3% year over year). Residential NALs were down 19,000, reaching 1.332 million (down 6.3% year over).

Dividend Hike

TELUS’ board of directors has declared a quarterly dividend of C$0.4925 per share payable on Oct 2, 2017 to holders of record at the close of business on Sep 8, 2017. This represents a 7.1% increase from the C$0.46 quarterly dividend paid on Oct 3, 2016.

Guidance

For 2017, TELUS expects revenues to fall in the range of C$13.18–C$13.31 billion. EBITDA will be in the range of C$4.875–C$5.04 billion. Basic EPS will be C$2.49–C$2.66. Capital expenditures will be approximately C$3 billion.

Zacks Rank

TELUS currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.The company competes with the likes of Rogers Communications Inc. (RCI Free Report) , Shaw Communications Inc. (SJR Free Report) and BCE Inc. (BCE Free Report) in the Canadian telecom market.

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