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TELUS (TU) Lags Q1 Earnings Estimates, Revenues Grow Y/Y

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·6 min read
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TELUS Corporation TU reported lackluster first-quarter 2021 results, wherein both the bottom and the top lines missed their respective Zacks Consensus Estimate. However, diligent operational execution, expanded service offerings and strategic acceleration of broadband network investment program on the back of an accretive subscriber base favored TELUS’ resilience amid a volatile environment. Shares of Canada-based telco inched up 0.9% to close the trading session at $21.66 on May 7.

Net Income

Net income in the March quarter declined 5.4% year over year to C$331 million or C$0.25 per share. The deterioration was due to higher depreciation and amortization charges, declines in legacy fixed voice and data services and higher employee benefits expenses. The results were further hurt with the lingering effects of the COVID-19 pandemic.

Quarterly adjusted net income was C$359 million or C$0.27 per share ($283.5 million or 21 cents per share) compared with C$400 million or C$0.32 per share in the prior-year quarter. The bottom line missed the Zacks Consensus Estimate by 2 cents.

TELUS Corporation Price, Consensus and EPS Surprise

TELUS Corporation Price, Consensus and EPS Surprise
TELUS Corporation Price, Consensus and EPS Surprise

TELUS Corporation price-consensus-eps-surprise-chart | TELUS Corporation Quote

Revenues

On the virtue of a resilient business model, quarterly total operating revenues increased 8.9% year over year to C$4,024 million ($3,088 million). The growth reflects higher demand for premium bundled services that resulted in 145,000 new customer additions in the reported quarter. Also, robust asset mix with best-in-class digital capabilities and superior service offerings across wireless and fibre broadband networks acted as a major tailwind. The top line, however, lagged the consensus estimate of $3,157 million.

Quarterly Segment Results

Beginning first-quarter 2021, TELUS made changes to its reporting categories to better align with operational changes. The company will now report its revenues in two segments — TELUS technology solutions (TTech) and TELUS International (DLCX).

TELUS technology solutions (TTech) revenues increased 6.1% year over year to C$3,494 million, primarily driven by higher revenues in mobile and fixed equipment, fixed data services and health services. Mobile network revenues fell 0.5% to C$1,503 million due to declining mobile phone ARPU from reduced roaming revenues related to travel restrictions.

Fixed voice services declined 9.3% to C$214 million compared with C$236 million in the year-ago period. This reflects the ongoing decline in legacy voice revenues from technological substitution accompanied with greater use of long-distance plans and price plan changes. Meanwhile, Health services jumped 9.8% to C$123 million, driven by the positive impact from business acquisitions and higher revenues from virtual care solutions. This was further fueled by growth in healthcare provider solutions.

The segment’s adjusted EBITDA of C$1,365 million increased 1.8% over the same period a year ago, led by higher revenues from mobile, and fixed products and services along with savings achieved from cost reduction efforts, which were undertaken to tackle the economic impacts of the COVID-19 turmoil. Adjusted EBITDA margin was 39.1% compared with 40.7% in the year-ago quarter. Capital expenditures increased 2.5% year over year to C$662 million.

Revenues from Digitally-led customer experiences – TELUS International (DLCX) grew 28.1% year over year to C$639 million. Operating revenues (arising from contracts with customers) surged 44.6% to C$535 million, primarily driven by business acquisitions along with organic growth in customers.

The segment’s adjusted EBITDA of C$138 million improved 3% from the year-ago quarter’s figure. However, Adjusted EBITDA margin was 21.6% compared with 26.8% in the prior-year quarter. The decline was due to lower contribution from Lionbridge AI accompanied with forex woes. Capital expenditures were up 21.1% year over year to C$23 million.

Notably, TELUS PureFibre network covered more than 2.5 million premises at the end of first-quarter 2021.

Other Details

EBITDA was C$1,461 million, up 3.7% year over year, driven by higher fixed data service margins from accretive subscriber base, growth in mobile equipment margins, improved cost efficiency programs and increased contribution from TELUS International segment. Positive impact from business acquisitions was a driving factor as well. Adjusted EBITDA increased 1.9% year over year to C$1,503 million. Capital expenditures grew 3% to C$685 million on the back of increased 5G investments, fast-tracked investments to increase system capacity and higher purchase of equipment to support subscriber growth.

Cash Flow & Liquidity

In the first three months of 2021, TELUS generated C$939 million of cash from operating activities compared with C$1,177 million in the year-ago period. Free cash flow plunged 41.1% year over year to C$321 million. As of Mar 31, 2021, the company had C$1,903 million ($1,511.2 million) of cash and temporary investments with C$17,185 million ($13,646.6 million) of long-term debt.

2021 Outlook Updated

In 2021, TELUS plans to continue generating positive financial outcomes and strong customer growth. The company expects revenue growth between 8% and 10% year over year. Adjusted EBITDA growth is projected in the 6-8% band. While free cash flow is estimated to be around C$750 million compared with prior guidance of C$1,500 million, capital expenditures are likely to be C$3,500 million versus previous figure of C$2,750 million. With an optimistic approach, the company expects to drive its financial and operational performance, and propel future broadband investments with expanded Canadian market footprint on the back of enhanced customer growth.

Zacks Rank & Stocks to Consider

TELUS currently has a Zacks Rank #3 (Hold).

A few better-ranked stocks in the broader industry are MYR Group Inc. MYRG, National Fuel Gas Company NFG and CMS Energy Corporation CMS, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

MYR Group delivered a trailing four-quarter earnings surprise of 55.2%, on average.

National Fuel Gas delivered a trailing four-quarter earnings surprise of 12.3%, on average.

CMS Energy delivered a trailing four-quarter earnings surprise of 6.8%, on average.

Conversion rate used:

C$1 = $0.789573 (period average from Jan 1, 2021 to Mar 31, 2021)

C$1 = $0.794100 (as of Mar 31, 2021)

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