Telus Corporation (TU) reported first-quarter 2013 adjusted earnings per ADS of 55 cents (55 Canadian cents per share), which were ahead of the Zacks Consensus Estimate of 53 cents. Adjusted earnings increased 17% from 47 Canadian cents (47 cents) per share registered in the year-ago quarter.
Adjusted earnings for the reported quarter excluded the impact of special item related to favorable income tax-related adjustments of a penny per share.
The total revenue grew 4.8% year over year to $2.74 billion (C$2.76 billion) but missed the Zacks Consensus Estimate of $2.76 billion. The year-over-year increase was buoyed by higher revenues from wireless and wireline data services.
Quarterly adjusted EBITDA upped 5.4% year over year to C$1,034 million ($1,026 million), resulting in an EBITDA margin of 37.5%, up 20 basis points.
Segment Results
Wireless revenues rose 6.5% year over year to C$1.48 billion ($1.47 billion) in the reported quarter driven by higher data revenue growth.
Within network revenues, data revenues jumped 17.1% year over year on continued strong adoption of smartphones like Apple Inc.’s (AAPL) iPhone and related data plans, increased mobile Internet devices and tablets, and higher data roaming revenues. Voice revenues slid 0.3% year over year, due to falling voice average revenue per user (ARPU).
In the first quarter, ARPU grew 2% year over year to C$60.04 ($59.58), primarily attributable to higher data ARPU (up 12.0% year over year) negated by lower voice ARPU (down 4.5%) to some extent. The monthly subscriber churn (customer switch) improved to 1.48% from 1.55% in the year-ago quarter on the back of high-value client retention and lower smartphone churn.
Quarterly, net wireless subscriber addition was 374,000, reflecting growth of 3% from the year-ago quarter. Telus lost 26,000 net prepaid customers in the first quarter compared with a net loss of 41,000 in the year-ago quarter. Additionally, net post-paid subscriber addition was 59,000 in the quarter, representing a year-over -year decline of 6.3%.
Telus had 7.7 million wireless subscribers (up 4.6% year over year), including 6.60 million post-paid customers ( up 6.6% year over year) and $1.10 million prepaid customers (down 5.9% year over year) at the end of the reported quarter.
Wireline revenues nudged up 2.8% year over year to C$1.33 billion ($1.32 billion) in the reported quarter due to strong growth in data services and equipment revenues, partially offset by lower voice local, voice long distance and other services and equipment revenues.
Data and equipment revenues climbed 9.0% year over year to C$764 million ($758 million) owing to healthy TV subscriber growth, higher rates, enhanced Internet and data services, and increased data equipment sales.
Voice local revenues fell 5.3% year over year to C$340 million ($337.4 million) while voice long-distance revenues dropped 8.2% to C$101 million ($100.23 million), hurt by lower revenues from basic access, ongoing industry-wide price competition, shift to wireless and Internet-based services, and declining residential access lines.
During the quarter, Telus added 34,000 TV subscribers to reach 712,000 total customers (up 28.8% year over year). Net high-speed Internet subscriber additions were 16,000, bringing the total number of customers at the end of the first quarter to 1.3 million (up 6.8% year over year).
Liquidity
Telus ended the quarter with cash and investments of C$22 million ($21.8 million) compared with C$107 ($107 million) million at the end of fiscal 2012. Net debt reduced to C$6.595 billion ($6.545 billion) compared with C$6.898 billion ($6.882 billion) in the year ago quarter. Net debt to EBITDA (excluding restructuring costs) decreased to 1.7 times from 1.8 times in the year-ago quarter and was within the company’s long-term target of 1.5−2 times.
Telus generated free cash flow of C$ $1.3 billion ($1.29 billion), exhibiting an annualized growth of 12%. Capital expenditure was C$467 million ($463 million) in the first quarter compared to C$441 million ($440 million) in the year-ago period.
Dividend & Share Buybacks
The company’s board of directors increased the quarterly dividend by 11.5% to 34 Canadian Cents from 30.5 Canadian cents paid in the corresponding year ago period. In addition, the company increased its dividend growth program by another three years up till 2016 with projection of semi-annual dividend growth of approximately 10%.
Further, Telus expects to repurchase 15 million-share worth $500 million in 2013, which is expected to move upto $2 billion by 2016.
Our Take
We believe that the company’s ongoing investments in the expansion of LTE and Internet data centers will fuel strong future growth leading to more opportunities in the wireless and cloud computing businesses. Likewise, in the wireline front, Telus continues to focus on the efficiency of the Optik TV and Optik High-Speed Internet broadband services, which remains to be its strength in operations.
Nevertheless, persistent erosion in access lines in the wireline segment and weak voice services in wireless might weigh on the company’s future earnings. Further, a weak Canadian economy, competitive threats from players such as Rogers Communication (RCI) and BCE Inc. (BCE), and reduced roaming charges keep us on the sidelines.
TELUS CORP (TU): Free Stock Analysis Report
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