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Telus Beats by a Penny, Guides In-Line

Zacks Equity Research

The second largest Canadian telecommunications company, Telus Corporation (TU) reported first quarter 2012 adjusted earnings per ADS of $1.04 (C$1.04 per share) that beat the Zacks Consensus Estimate by a penny. Adjusted earnings increased 7.2% from C$0.97 per share in the year-ago quarter.

Adjusted earnings per share excluded an income tax benefit of 3 Canadian cents.

Total revenue grew 4% year over year to C$2.63 billion ($2.62 billion), but fell shy of the Zacks Consensus Estimate of $2.68 billion. The year-over-year increase was attributable to higher revenues from wireless and wireline data services.

Adjusted EBITDA upped 4.1% year over year to C$1.01 billion ($1.0 billion).

Segment Results

Wireless revenues spiked 5.8% year over year to C$1.39 billion ($1.39 billion) in the reported quarter driven by an increase of 7.1% in network revenue that was partially offset by a 9.5% decline in equipment and other revenue.

Within network revenue, data revenue jumped 36.1% year over year on strong adoption of smartphones and related data plans, increased mobile Internet devices and tablets, and higher data roaming revenues. Voice revenue slid 5.6% year over year, due to falling voice average revenue per user (:ARPU).

In the first quarter, ARPU inched up 1.7% year over year to C$58.87 ($58.75), primarily attributable to higher data ARPU (up 28.9% year over year) partly offset by lower voice ARPU (down 10.3%). The monthly subscriber churn (customer switch) improved to 1.55% from 1.70% in the year-ago quarter on the back of high-value client retention and lower smartphone churn.

Net wireless subscriber addition was 22,000, reflecting a significant decline of 31.3% from the year-ago quarter. Telus lost 41,000 net prepaid customers in the first quarter compared to 20,000 in the year-ago quarter. Net post-paid subscriber addition was 63,000, reflecting a 21.2% increase year over year.

Telus had 7.36 million wireless subscribers, including 6.19 million post-paid customers and $1.17 million prepaid customers at the end of the reported quarter.

Wireline revenues rose 2.1% year over year to C$1.29 billion ($1.29 billion) due to strong growth in data services and equipment revenue, partially compensated by lower voice local, voice long distance and other services and equipment revenues.

Data and equipment revenue climbed 13.1% year over year to C$700 million ($698 million) owing to healthy TV subscriber growth, higher rates, enhanced Internet and data services, and increased data equipment sales.

Voice local revenues fell 7.2% year over year to C$359 million ($358 million) while voice long-distance revenue dropped 11.3% to C$110 million ($110 million) due to lower revenues from basic access, ongoing industry-wide price competition, shift to wireless and Internet-based services, and declining residential access lines.

Telus added 44,000 TV subscribers to reach 553,000 customers (up 5.4.5% year over year). The massive growth can be credited to the ongoing success of the Optik TV brand, improved installation, enhanced service and expanded broadband coverage. Net high-speed Internet subscriber additions were 13,000, bringing the total number of customers at the end of the first quarter to 1.3 million.

The increase was driven by the success of Optik TV and Optik high-speed Internet service launched in June 2010, as well as continued broadband footprint expansion and speed enhancement.

Total network access lines declined 4.6% year over year to 3.54 million in the reported quarter, resulting from heavy discounted offers, intense cable competition and conversion from legacy voice services to IP services.


Telus ended the first quarter with cash and investments of C$68 million compared with C$23 million in the year-ago quarter. Net debt reduced to C$6.9 billion from the year-ago level of C$7.0 billion. Net debt to EBITDA (excluding restructuring costs) declined to 1.8 times from 1.9 times in the year-ago quarter and was within the company’s long-term target range of 1.5−2 times.

Telus generated free cash flow of C$358 million, up 121% year over year. Capital expenditure increased 7.8% year over year to C$441 million in the first quarter.


For 2012, Telus reiterated its financial guidance. The company expects consolidated revenue to grow in the range of 3–6% to $10.7–$11.0 billion, EBITDA to increase 1–6% to $3.8–$4.0 billion and earnings per share to grow 0–10% to $3.75–$4.15. Capital expenditure is expected to be approximately $1.85 billion.

Telus expects Wireless revenues to grow 5–8% to C$5.75–C$5.9 billion and EBITDA to grow 5–10% to C$2.3–C$2.4 billion for 2012. For the Wireline segment, Telus expects revenue to grow 0–3% to C$4.95–C$5.1 billion and EBITDA to range between minus 6% and plus 1% at C$1.5–C$1.6 billion.

Our Take

We believe the rapid growth of HSPA+Dual Cell networks into various markets and the recent rollout of LTE networks in urban areas will boost wireless profitability going forward. In addition, the expansion of fiber optic networks (i.e. Optik TV and Optik High Speed broadband) in the wireline division also bodes well for futureearnings and cash flow.

Nevertheless, persistent erosion in access lines in the Wireline segment and weak voice services in Wireless might weigh on future earnings. Further, a weak Canadian economy, competitive threats from players such as Rogers Communication (RCI) and BCE Inc. (BCE) as well as reduced roaming charges keep us on the sidelines.

We are currently maintaining our long-term Neutral recommendation on Telus. For the short term (1–3 months), the stock retains the Zacks #3 (Hold) Rank.

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