Telus (TU) Down 18.7% Since Last Earnings Report: Can It Rebound?

A month has gone by since the last earnings report for Telus (TU). Shares have lost about 18.7% in that time frame, outperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Telus due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

TELUS Q4 Earnings Miss Estimates, Revenues Rise Y/Y

TELUS reported unimpressive fourth-quarter 2019 results, wherein the bottom line and the top line marginally missed the respective Zacks Consensus Estimate.

Net Income

Net income for the December quarter increased 3.1% year over year to C$368 million or C$0.61 per share, driven by EBITDA growth partly offset by higher depreciation and amortization due to increase in asset base. For 2019, net income was C$1,776 million or C$2.90 per share compared with C$1,624 million or C$2.68 per share in 2018. Fourth-quarter adjusted net income was C$400 million or C$0.67 per share ($303 million or 50 cents per share) compared with C$409 million or C$0.69 per share in the year-ago quarter. The bottom line missed the Zacks Consensus Estimate by 2 cents.

Revenues

Quarterly aggregate operating revenues increased 2.5% year over year to C$3,858 million ($2,922.7 million) driven by growth in wireless network revenues and wireline data services revenues. The top line, however, lagged the consensus estimate of $2,926 million. For 2019, revenues grew 2% year over year to C$14,658 million.

Quarterly Segment Results

Operating revenues at TELUS Wireless slipped 0.5% year over year to C$2,169 million ($1,643.1 million), as network revenue growth was more than offset by a decrease in equipment and other service revenues. Network revenues increased 1.5% to C$1,531 million, reflecting 5.5% growth in the subscriber base over the last 12 months, partly offset by declining mobile phone ARPU. Equipment and other service revenues were C$619 million, down 4% year over year, reflecting lower wireless contracted volumes due to market offers and lower prices on certain handsets. The segment’s adjusted EBITDA of C$911 million increased 6.9% over the same period a year ago, reflecting higher network revenue growth driven by a larger subscriber base, savings from cost efficiency programs and the implementation of IFRS 16. Adjusted EBITDA margin was 41.9% compared with 39.1% in the year-ago quarter. Capital expenditures decreased 5.9% year over year to C$238 million.

TELUS Wireline operating revenues increased 7.3% year over year to C$1,770 million ($1,340.9 million) driven by higher data services revenue growth. Data services revenues were C$1,330 million, up 10.8%. This was driven by growth in customer care and business services (CCBS) revenues, increased Internet and third wave data service, health and TV revenues, along with revenues from home and business smart technology lines of business. Voice service (local and long distance) revenues were C$240 million, down 7.3%. Other service and equipment revenues were C$106 million, up 6%. The segment’s adjusted EBITDA of C$502 million increased 9.6% from the year-ago quarter figure. This was driven by increased contribution from higher Internet margins and expansion in CCBS business from additional services for existing customers. Adjusted EBITDA margin was 28.4% compared with 27.7% in the prior-year quarter. Capital expenditures were up 10% year over year to C$504 million.

Other Details

Overall EBITDA was C$1,368 million, up 10.8% year over year. This reflects increased wireless network revenues, growth in wireline data service margins, a higher EBITDA contribution from CCBS and health businesses. However, the momentum was partly offset by continued declines in wireline legacy voice and data services. Adjusted EBITDA increased 7.9% year over year to C$1,413 million.

Cash Flow & Liquidity

In 2019, TELUS generated C$3,927 million of cash from operating activities compared with C$4,058 million in 2018. Free cash flow for the same period declined 22.8% year over year to C$932 million. As of Dec 31, 2019, the company had C$535 million ($411 million) of net cash and temporary investments with C$17,142 million ($13,168 million) of long-term debt, compared with the respective tallies of C$414 million and C$13,265 million a year ago.

2020 Outlook

TELUS’ financial targets for 2020 reflect growth in data services across wireless and wireline. The company intends to continue generating subscriber growth in its key segments, including wireless, Internet, TV, as well as home automation and security. Increasing demand for reliable access and fast data services is expected to support customer growth. TELUS Health and TELUS International are also likely to continue contributing to the company’s growth profile. In 2020, TELUS expects revenue growth of 6-8%. Adjusted EBITDA is anticipated to increase 5-7% year over year. Free cash flow is estimated in the range of C$1,400 million to C$1,700 million, while capital expenditures are likely to be around C$2,750 million.
Conversion rate used:
C$1 = $0.757560 (period average from Oct 1, 2019 to Dec 31, 2019)
C$1 = $0.768174 (as of Dec 31, 2019)

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates.