By Alastair Sharp
TORONTO Jan 14 Western Canada-focused Shaw
Communications Inc posted a 4 percent rise in
first-quarter profit on Tuesday, but it continued to lose
customers in its main cable television business, sending its
shares almost 2 percent lower.
The Calgary, Alberta-based cable company, which is facing
tough competition for TV and Internet customers from telecom
rival Telus Corp and a burgeoning threat from online
alternatives such as Netflix Inc, said it lost 29,619
cable-TV subscribers and 9,323 satellite TV customers.
It added 2,746 Internet subscribers and 1,351 landline
telephone subscribers in the quarter, which ended on Nov 30.
The subscriber numbers missed or barely met analyst
expectations, while Shaw said it was more focused on raising
prices for its services than growing its subscriber base.
"Customers have choices," Shaw's Chief Operating Officer Jay
Mehr told analysts on a conference call. "I'm not sure we would
use that word (cord-cutting) but for sure, some of our voice
customers are staying with us and disconnecting their voice, and
for sure some of our video customers are staying with us on
Internet and moving to other ways to receive video."
Shaw, with 2.9 million TV customers, has sought to hold back
on steep discounting to counter the threats, instead upgrading
the speed and quality of its broadband and adding other features
to its TV product.
"Our performance was driven by growth in our commercial
business, discipline around customer acquisition, and strength
in our Internet business," CEO Brad Shaw said in a statement.
RBC Capital Markets analyst Drew McReynolds said higher
programming costs and employee bonuses pressured Shaw's cable
earnings margin, which fell almost a full percentage point,
while acquisitions and divestitures added to margin variance.
The company raised its dividend payout by 8 percent to
C$1.10 per non-voting share at its annual meeting later on
Tuesday. However, Canaccord Genuity analyst Dvai Ghose said
investors should be concerned that an unrealistically high
payout, funded in part by a dividend reinvestment plan, is
diluting Shaw's stock.
"We continue to believe that the stock is overvalued and
that (these) results highlight our key concerns," he wrote.
Shaw said its net income was C$245 million, or 51 Canadian
cents a share, compared with C$235 million, or 50 Canadian cents
a share, a year earlier. Revenue was up 3 percent at C$1.36
Shaw said revenue in its cable division grew 4 percent,
mostly due to higher rates and fewer promotions.
Shaw is seen by analysts as most exposed to the broadcast
regulator's moves to force television distributors to offer more
flexibility in their channel packages.
Free cash flow dipped to C$157 million in the quarter from
C$244 million a year ago as Shaw spent more on capital
investment and paid higher taxes. It expects cash flow to range
between C$625 million and C$650 million in 2014.
Shaw is trying to sell an asset - wireless airwave licenses
bought in a 2008 auction - that the federal government does not
want to see fall into the hands of the country's biggest
operators. Another major auction of airwaves began on Tuesday.
It has agreed to give Rogers Communications,
Canada's largest wireless company, the option to acquire the
spectrum. If the sale is ultimately blocked it would hurt Shaw's
free cash flow.
Shaw nixed its own plan to build a wireless network in 2011,
instead focusing on creating what is now Canada's largest WiFi
network with Internet connections in over 30,000 locations such
as coffee shops, transportation hubs and offices.
CEO Brad Shaw said on the call that the WiFi offering, free
for Shaw's customers, had helped to limit the number of people
dropping other services.
The company reiterated a forecast for 2014 revenue growth of
between 2 and 4 percent it first made in October.
Its shares ended down 1.7 percent at C$24.88 on the Toronto
Stock Exchange, their sharpest one-day decline since Dec. 11.