CALGARY – Shaw Communications today reported solid third quarter results, beating analysts extimates and revealing its number of telephony subscribers for the first time.
The satellite, cable, Internet and telephone company announced net income of $43.3 million or $0.16 per share for the quarter ended May 31, 2005 compared to net income of $24.8 million or $0.06 per share for the comparable period in 2004. The market was expecting $0.12 per share.
Net income for the nine months of the year was $94.2 million or $0.36 per share, up from $62.0 million or $0.14 per share last year.
"Shaw’s entry into the telephone business is a defining moment in our history,” said company CEO Jim Shaw in the release. “On February 14, 2005, we launched Shaw Digital Phone in Calgary and followed up approximately two months later with a launch in Edmonton. With these two markets launched we are able to offer telephone service to over 25% of our customers. Digital Phone gives us the capability to tap into a new revenue stream leveraging off our existing infrastructure and we are pleased by the success in our first full quarter of Digital Phone operations. At May 31, 2005, we reported installed and pending Digital Phone lines of 22,450."
The company is expected to announce its telephony intentions for Vancouver, soon.
Total service revenue of $559.9 million and $1.6 billion for the three and nine month periods, respectively, grew 5.2% and 6.4% over the same periods last year. Consolidated service operating income before amortization of $252.9 million and $731.2 million improved 6.4% and 6.5%, respectively. Funds flow from operations increased to $197.7 million and $564.4 million for the quarter and year-to-date compared to $179.3 million and $508.5 million in the same periods last year.
On the traditional lines of business, the company reported quarterly customer growth in basic cable of 1,338 or 0.1%, digital television of 9,764 or 1.7%, Internet of 27,034 or 2.5% and DTH of 6,252 or 0.8%.
Free cash flow for the quarter was $89.3 million bringing the year-to-date amount to $195.6 million. This compares to $73.7 million and $222.8 million in the same periods last year. The decrease on a year-to-date basis was primarily due to higher capital expenditures in cable associated with investments to support customer growth and the rollout of Digital Phone. Satellite achieved record free cash flow of $20.9 million for the quarter.
"The performance to date provides us with confidence that Shaw is on track to meet its free cash flow guidance of $270 – $285 million for 2005. We are excited about our product success and need to continue to rollout new products and services rapidly,” said CEO Shaw.
“Accordingly, our preliminary view for fiscal 2006 calls for capital and net equipment spending to range from $535 – $545 million. We are planning to increase capital spending in fiscal 2006 in order to accelerate digital phone growth and to support ongoing network upgrades and service enhancements in Internet, digital video, HDTV and VOD.
“In addition, the company plans to start a multi-year project to upgrade and modernize its customer management and billing systems in order to facilitate the increasing complexity of offering greater customer choices, bundled offerings and transaction-based services. These improvements will also enable the company to address the future integration of service offerings, offer new services rapidly and respond to competitive dynamics. We expect that growth of service operating income before amortization in fiscal 2006 will be moderated by the ongoing upfront investments required for Digital Phone deployment. We plan to provide specific guidance on service operating income before amortization and free cash flow when we release our 2005 year-end results."
Cable service revenue increased 6.9% for the quarter to $405.6 million (2004 – $379.3 million) and 6.9% for the nine months of the year to $1.2 billion (2004 – $1.1 billion). This growth resulted from rate increases, customer growth and the impact of the Monarch cable systems acquisition which took place in the third quarter of fiscal 2004. Service operating income before amortization increased 4.4% to $203.9 million (2004 – $195.2 million) for the quarter and 2.2% to $596.9 million (2004 – $583.8 million) for the nine months.
On a year-over-year basis, the Satellite division’s service revenue increased by 1% to $154.3 million and by 5.0% to $457.6 million for the three and nine months, respectively, due to rate increases, change in mix of promotional activities and customer growth in DTH. Over the same respective periods, service operating income before amortization increased by 15.5% to $49 million and 22.8% to $134.4 million. The improvement was largely due to the growth in DTH revenue and reduced costs.
"Both divisions are meeting expectations,” said Shaw. “The satellite business is maturing and the team is now able to focus on operating efficiencies which is reflected in the double digit growth in service operating income before amortization over the same periods last year. On a consecutive basis, satellite’s quarterly service operating income before amortization increased 8.9%, while cable’s increased 2.3%. With the launch of Digital Phone, cable has incurred upfront investments to enhance customer care and build our telephone operations. While this has exerted pressure on cable margins, we strongly believe these investments position the company for significant growth in the future."
