Shaw Communications Inc. (SJR) declared financial results of its fourth quarter of fiscal 2010, which falls below the Zacks Consensus Estimates. Quarterly net income was $117 million or 27 cents per share compared to a net income of $120 million or 28 cents per share in the prior-year quarter. The fourth quarter EPS of 27 cents was significantly below the Zacks Consensus Estimate of 33 cents.
Quarterly total revenue of a little over $903 million was up 8% year-over-year. The year-over-year improvement was primarily due to customer growth from new acquisitions and rate increases. However, fourth quarter total revenue of $903 million was below the Zacks Consensus Estimate of $915 million.
Quarterly operating income before amortization was $407 million, up 7.2% year-over-year. However, excluding one-time CRTC Part II fee recovery, operating income before amortization increased 9%. In the reported quarter, Shaw Communications generated $414.5 million of cash from operations compared to $338.9 million in the year-ago quarter. Free cash flow (cash flow from operations less capital expenditures) in the same quarter was $148.3 million compared to $155.3 million in the year-ago quarter.
At the end of fiscal 2010, Shaw Communications had $208.5 million of cash & cash equivalents on its balance sheet compared to $453.2 million at the end of fiscal 2009. At the end of fiscal 2010, Shaw Communications had $3,830.7 million of outstanding debt on its balance sheet compared to $3,150.5 million at the end of fiscal 2009. Debt-to-capitalization ratio, at the end of fiscal 2010 was 0.59 compared to 0.52 at the end of fiscal 2009.
Subscribers Statistics
At the end of fiscal 2010, Basic Cable customer base was 2,333,438, net year-over-year addition of 2,559. Digital customer base was 1,650,565, net year-over-year addition of 54,946. Internet customer base was 1,818,347, net year-over-year addition of 21,374. Digital phone lines were 1,096,306, net year-over-year addition of 51,896. DTH customer base was 905,796, net year-over-year addition of 831.
Cable Segment
Quarterly revenue was $713.3 million, up 8.6% year-over-year. Quarterly operating income before amortization was $342.9 million, up 8.6% year-over-year. Subscriber growth through new acquisitions and rate increases are the primary reasons for this impressive result.
Satellite Segment
Quarterly total revenue of $190 million was up 3.7% year-over-year. Within this segment, DTH revenue was $171.2 million, 5.1% year-over-year and Satellite Service revenue was $18.8 million, down 7.7% year-over-year. Quarterly operating income before amortization for the whole segment was $65.4 million, up 2.2% year-over-year.
Future Outlook
Management predicted that for fiscal 2011, the growth rate of the core service operating income before amortization will decline modestly year-over-year. Capital investment is expected to decline and cash taxes are estimated to increase year-over-year. Free cash flow will be approximately $550 million in fiscal 2011. Management also declared that the company will invest approximately $200 million during fiscal 2011 on its Wireless initiative.
Our Recommendation
We maintain our long-term Neutral recommendation for Shaw Communications. We believe the company’s recent initiative for a super-fast FTTH network and entry into wireless market will sustain its long-run growth.
However, the short-term rating for this stock is a Zacks #2 Rank (Buy). We believe this was primarily due to the company’s recent acquisition of Canwest Global Communications Corp., which may position Shaw Communications as one of the leading entertainment and communications companies in Canada.
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