Shaw (SJR) Up 0.8% Since Last Earnings Report: Can It Continue?

A month has gone by since the last earnings report for Shaw Communications (NYSE:SJR). Shares have added about 0.8% in that time frame, underperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Shaw due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Shaw Communications Q2 Earnings In Line, Revenues Up Y/Y

Shaw Communications reported second-quarter fiscal 2020 adjusted earnings from continuing operations of 24 cents per share, in line with the Zacks Consensus Estimate.

Total revenues of $1.04 billion beat the consensus mark of $972 million.

In Canadian currency, the company reported adjusted earnings of C$0.32 per share, up 6.7% year over year. Moreover, total revenues increased 3.7% to C$1.36 billion.

Segmental Update

Wireline revenues (78% of total revenues) dipped 0.7% on a year-over-year basis to C$ 1.06 billion.

Wireline - Consumer revenues slid 1.5% to C$919 million. Growth in Internet revenues was fully offset by a decline in Video, Satellite and Phone revenues.

Wireline - Business revenues inched up 4.3% to C$144 million. Segmental results reflected continued growth in Internet revenues and demand for the Smart
Suite of business products.

Wireless revenues (22.8% of total revenues) rose 22.8% on a year-over-year basis to C$302 million.

Wireless - Service revenues (66.6% of total segment revenues) were up 19.6% from the year-ago quarter to C$201 million, primarily driven by higher revenue-generating units (RGUs) or subscribers and an improved penetration of Big Gig data plans.

Average billing per subscriber unit (ABPU) grew 6.8% year over year to C$43.84, driven by increased number of customers subscribing to higher service plans. ARPU rose 3.1% from the year-ago quarter to C$38.45.

Wireless - Equipment revenues (33.4% of total revenues) jumped 29.5% year over year to C$101 million. Segmental revenues benefited from a higher number of customers who bought devices through Freedom Mobile.

Subscriber/RGU Details

Wireline RGUs declined almost 50,505 in the reported quarter compared with a loss of roughly 44,630 a year ago.

In the Wireline - Consumer segment, the video cable lost 19,310 subscribers in the three months ended Feb 29, 2020. Video satellite customer count decreased by 13,211. Phone lost 23,547 customers. However, Shaw Communications’ Wireline - Internet business gained 6,072 customers in the quarter.

In the Wireline - Business Network Service segment, the video cable lost 2,779 customers in the reported quarter. Moreover, Internet customers declined by 338. However, the company gained 1,099 Video-satellite customers and 1,509 Phone customers.

In the Wireless Segment, Shaw Communications added 51,059 net RGUs. While the company added 54,289 post-paid subscribers, it lost 3,230 pre-paid customers.

Post-paid addition reflected steady demand for the Big Gig data centric and Absolute Zero pricing and packaging options. However, a higher churn rate due to stiff competition negatively impacted the pre-paid subscriber base.

Post-paid churn of 1.57% in the reported quarter was higher than 1.36% in the year-ago quarter.

Notably, the company now serves approximately 18 million people, almost half of the Canadian population. Moreover, Freedom Mobile added roughly 54
K new postpaid customers, driving its wireless subscriber base to 1.8 million.

The company’s wireless service is available in more than 700 locations.

Operating Details

In second-quarter fiscal 2020, operating, general & administrative expenses slipped 0.5% year over year to $763 million. Operating, general & administrative expenses, as a percentage of revenues, decreased 230 basis points (bps) to 56%.

Notably, almost 260 employees exited the company in the quarter due to the voluntary departure program (VDP) under the Total Business Transformation (TBT) initiative. On Mar 5, 2020, Shaw Communications announced the substantial completion of the TBT initiative.

Adjusted EBITDA grew 9.5% year over year to $600 million. Adjusted EBITDA margin expanded 230 bps on a year-over-year basis to 44%.

Excluding a $41-million impact related to the adoption of IFRS 16 (Leases), adjusted EBITDA grew roughly 2% year over year.

Segment-wise, Wireline adjusted EBITDA increased 4.4% to $519 million. Wireline segment adjusted EBITDA margin expanded 240 bps on a year-over-year basis to 48.8%.

Wireless adjusted EBITDA jumped 58.8% to C$81 million. Wireless segment adjusted EBITDA margin expanded 990 bps on a year-over-year basis to 40.3%.

Balance Sheet & Cash Flow Details

As of Feb 29, 2020 Shaw Communications had cash worth $47 million and had drawn $55 million under its $1.5-billion bank credit facility.

Moreover, as of Feb 29, 2020, the company’s net debt leverage ratio was 2.5
X, within management’s optimal range of 2.5
X-3
X.

In the quarter, capital expenditures of C$276 million were flat year over year

Wireline capital spending increased C$28 million year over year. Wireless spending decreased roughly C$31 million year over year.

Free cash flow was $191 million compared with $159 million in the year-ago quarter.

Guidance

For fiscal 2020, Shaw Communications expects to deliver adjusted EBITDA growth on a year-over-year basis. Free cash flow is still expected to be $700 million.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -16.07% due to these changes.

VGM Scores

Currently, Shaw has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. Following the exact same course, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. Notably, Shaw has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report