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TELUS (TU) Q2 Earnings Beat Estimates, Revenues Increase Y/Y

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TELUS (TU) Q2 Earnings Beat Estimates, Revenues Increase Y/Y

TELUS (TU) beats Q2 earnings supported by top-line growth in both its operating segments.

TELUS Corporation TU reported healthy financial results in the second quarter of 2018, wherein both the top line and the bottom line surpassed the respective Zacks Consensus Estimate.

Net Income

Net income for the quarter increased 0.3% year over year C$390 million or C$0.66 per share ($302.1 million or 51 cents per share), primarily driven by growth in operating revenues in both its operating segments.

Adjusted net income increased 0.5% year over year to C$414 million or C$0.70 per share ($320.7 million or 54 cents per share). The bottom line surpassed the Zacks Consensus Estimate of 53 cents.

TELUS Corporation Price, Consensus and EPS Surprise

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

Revenues

Quarterly consolidated operating revenues increased 5.3% year over year to C$3,453 million ($2,676 million), beating the Zacks Consensus Estimate of $2,644 million. The year-over-year increase was primarily driven by higher consolidated service revenues, growth in wireless network revenues and wireline data services revenues.

Operating Metrics

Operating income was C$692 million ($536.1 million), up 1.5% year over year. EBITDA (earnings before interest, income taxes, depreciation and amortization) was C$1,251 million ($969.1 million), up 3.6% year over year, backed by higher wireless network revenues and wireline services revenue growth. Adjusted EBITDA increased 3.6% year over year to C$1,286 million ($996.2 million). Adjusted EBITDA margin was 38.6% compared with 38.9% in the year-ago quarter.

Segmental Performance

Wireless operating revenues increased 3.6% year over year to C$1,941 million ($1,503.6 million).

Wireless network revenues increased 2.7% to C$1,497 million ($1,159.7 million), largely driven by subscriber growth and a larger proportion of customers selecting plans with larger data buckets. Equipment and other service revenues were C$424 million ($328.5 million), up 3.9% year over year, mainly due to higher postpaid gross additions and more high-valued smartphones in the sales mix.

Adjusted EBITDA of C$851 million ($659.3 million) increased 3.3% from the prior-year quarter, reflecting network revenue growth driven by a larger customer base and an improvement in equipment margins. This was partly offset by higher administrative costs and increased customer support costs due to growth in the subscriber base and increased network operating expenses. Adjusted EBITDA margin was 43.8% compared with 44% in the year-ago quarter.

Wireless capital expenditures declined 6.2% year over year to C$243 million ($188.2 million). This was due to activity in the second quarter of 2017 which the company incurred as costs to update its radio access network technology in Ontario and Quebec.

Wireline operating revenues increased 7.1% year over year to C$1,574 million ($1,219.3 million).

Data services revenues were C$1,131 million ($876.2 million), up 13%. This was attributable to higher customer care and business services (CCBS) contracting revenues due to growth in business volumes from recent business acquisitions, increased Internet and enhanced data service revenues. Voice service (local and long distance) revenues were C$277 million ($214.6 million), down 10.1%. Other service and equipment revenues were C$111 million ($85.9 million), up 20.7%.  

Adjusted EBITDA of C$435 million ($336.9 million) increased 4% from the prior-year quarter figure. This was due to growth in data service margins including CCBS, Internet and TELUS Health services, and an increase in other services and equipment revenues. Adjusted EBITDA margin was 27.7% compared with 28.5% in the year-ago quarter.

Wireline capital expenditures declined 0.5% year over year to C$548 million ($424.5 million). During the quarter, the company continued to connect more homes and businesses directly to its fibre-optic technology.

Cash Flow & Liquidity

For the first six months of 2018, TELUS generated C$2,044 million of cash from operations compared with C$1,835 million in the year-ago period. Free cash flow for the first half of the year increased 61.8% year over year to C$772 million.

As on Jun 30, 2018, the company’s net debt was C$13,667 million ($10,399 million).

Zacks Rank & Stocks to Consider

TELUS currently has a Zacks Rank #3 (Hold). Better-ranked stocks in the broader industry include Algonquin Power & Utilities Corp. AQN, CMS Energy Corporation CMS and Alliant Energy Corporation LNT, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Algonquin has an expected long-term earnings growth rate of 8%. It exceeded earnings estimates thrice in the trailing four quarters with an average positive surprise of 28.6%.     

CMS Energy has an expected long-term earnings growth rate of 6.2%.  

Alliant has an expected long-term earnings growth rate of 5.6%.

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C$1 = $0.774678 (Period average from Apr 1, 2018 to Jun 30, 2018)

C$1 = $0.760884 (As on Jun 30, 2018)


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