It has been about a month since the last earnings report for Telus (TU). Shares have added about 0.2% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Telus due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
TELUS Q2 Earnings Miss Estimates, Revenues Increase Y/Y
TELUS reported mixed second-quarter 2019 financial results, wherein the bottom line missed the Zacks Consensus Estimate but the top line surpassed the same.
For the June quarter, net income increased 32.6% year over year to C$517 million or C$0.86 per share ($395.5 million or 66 cents). The improvement was attributable to EBITDA growth and lower income taxes, however, partially offset by higher depreciation and amortization due to increase in asset base.
Adjusted net income was C$416 million or C$0.69 per share ($318.3 million or 53 cents) compared with C$414 million or C$0.70 per share in the year-ago quarter. The bottom line marginally missed the Zacks Consensus Estimate by a penny.
Quarterly operating revenues increased 4.2% year over year to C$3,597 million ($2,752 million) on the back of both wireless and wireline data services revenue growth. The top line surpassed the consensus estimate of $2,694 million.
Total operating revenues from wireless segment increased 2.9% year over year to C$1,997 million ($1,527.9 million) driven by higher network and equipment revenues. Network revenues increased 1.7% to C$1,523 million driven by 5.4% subscriber growth, partially offset by decline in mobile phone ARPU. Equipment and other service revenues were C$455 million, up 7.3% year over year, mainly due to greater volumes of higher-value smartphones in the sales mix and growth in revenues per handset.
The segment’s adjusted EBITDA of C$924 million increased 8.6% from the prior-year quarter, reflecting higher network revenue growth, savings from cost reduction programs, and higher equipment margins, which include the company’s strategic focus away from non-accretive prepaid-to-postpaid migrations, and the implementation of IFRS 16. Adjusted EBITDA margin was 46.3% compared with 43.8% in the year-ago quarter. Capital expenditures decreased 8.2% year over year to C$223 million.
Wireline segment’s operating revenues increased 6.4% year over year to C$1,674 million ($1,280.7 million) driven by higher data services revenue growth, partially offset by decline in legacy voice and legacy data services revenues. Data services revenues were C$1,265 million, up 11.8%. This was attributable to higher customer care and business services (CCBS) revenues, mainly due to growth in business volumes resulting from expanded services, and increased Internet and enhanced data service revenues, reflecting higher revenue per customer. Voice service (local and long distance) revenues were C$249 million, down 10.1%.
Other service and equipment revenues were C$95 million, down 14.4%. The segment’s adjusted EBITDA of C$478 million increased 9.9% from the prior-year quarter figure. This was due to increase in contribution from CCBS business for existing customers, higher Internet margins, and higher TELUS Health margins inclusive of business acquisitions. Adjusted EBITDA margin was 28.5% compared with 27.7% in the year-ago quarter. Capital expenditures were down 0.2% year over year to C$547 million.
Overall EBITDA was C$1,373 million, up 9.8% year over year due to higher wireless network revenue growth and wireless equipment margins, growth in wireline data service margins, higher EBITDA contribution from CCBS and TELUS Health businesses, and the effects of implementation of IFRS 16. However, the momentum was partially offset by declines in wireline legacy voice and legacy data services. Adjusted EBITDA increased 9% year over year to C$1,402 million.
Cash Flow & Liquidity
During the first six months of 2019, TELUS generated C$1,950 million of cash from operating activities compared with C$2,044 million in the year-ago period. For the same period, free cash flow declined 38.2% year over year to C$477 million.
As of Jun 30, 2019, the Canadian telecommunications company had C$217 million ($165.7 million) of net cash and temporary investments, with C$15,015 million ($11,465.8 million) of long-term debt.
Conversion rate used:
C$1 = $0.765082 (period average from Apr 1, 2019 to Jun 30, 2019)
C$1 = $0.763620 (as of Jun 30, 2019)
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended downward during the past month.
Currently, Telus has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. However, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Telus has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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