By William Patalon III
Managing Editor
Telus Corp. (TU), the Number Two telephone company in Canada, on Friday said that its third-quarter profits jumped 28%, thanks to increased customer spending on wireless phone services. But the results still fell short of analyst estimates because the increased wireless revenue couldn’t overcome the increase in lower-priced phone calls.
The company’s U.S.-listed shares declined 11 cents each, or 0.19%, to close at on Friday.
With revenue from local phone service on the decline, Telus has embraced the same strategies as many other telecom carriers that are trying to offset such shifts by boosting sales of mobile-phone and wireless-data services. For Telus, third-quarter wireless sales rose, boosted by text messaging and e-mail. Still, average revenue per user declined 1.3% because “competitive pressures” forced the Telus to slash rates on voice calls, the company said.
For the three months ended Sept. 30, net income climbed to $434 million, or $1.32 a share, from $342.2 million, or 98.5 cents a share, for the comparable quarter a year ago [all figures have been converted into U.S. dollars]. Net income was $271 million in the second quarter, the Vancouver-based Telus reported.
The company’s second-quarter results had been hampered by high costs related to acquiring and retaining customers in the new era of “phone-number portability,” which became available in March. The results were also hurt by the implementation of a new client billing-and-care system in Alberta that temporarily kept the company from taking on new customers in that region.
Darren Entwistle, the Telus president and chief executive officer, told analysts that those problems have been resolved.
“I am encouraged that Telus addressed the short-term operating challenges we faced at the mid-point of 2007,” Entwistle told analysts during a teleconference early Friday. “The third-quarter results demonstrate, unequivocally, our improved execution – but they also demonstrate the challenges that we still need to answer if we are to continue advancing our growth strategy at the pace investors have come to expect from this organization.”
Excluding a $99.6 million gain, profits were $1.02 a share, beating the average estimate of 99.6 cents a share, according to a survey of analysts conducted by Bloomberg News.
Third-quarter sales totaled $2.47 billion, up 4.5% from sales of $2.36 billion for the comparable quarter a year ago – although they still fell short of the consensus revenue estimate, according to the Bloomberg survey. Telus cut its 2007 sales forecast to a range of $9.78 billion to $9.83 billion. Analysts had been forecasting sales of $9.81 billion, the survey said.
Entwistle, the CEO, said that Telus decided to slightly reduce its revenue guidance “based on the challenges we faced in the second quarter and our inability to overachieve in the second half of the year to ameliorate fully this shortfall.”
In terms of overall growth, revenue from wireless services continued to lead the way, leaping 9.4% to $1.18 billion for the third quarter. According to the company, the bulk of that increase was due to a 56% increase in revenue from data traffic as music downloads and text messaging soared, and as customers increased their reliance on – and use of – personal digital assistants (PDAs).
Telus added 31,000 high-speed Internet subscribers during the quarter, compared to only 14,000 a year earlier.
The company also signed 98,200 new mobile-phone customers to long-term contracts, fewer than the 103,000 estimated by Scotia Capital analyst John K. Henderson, who told Bloomberg that he's worried about the per-customer wireless sales “trending down.”
Indeed, the average revenue per customer (known, in industry parlance, by its acronym: ARPU), fell 1.3% to $69.38 a unit. That drop – the first year-over year decrease in 18 quarters – was due to a decline in voice-related ARPU, as spiraling mobile-phone competition brought down pricing for voice minutes and prompted carriers to offer more free minutes in their wireless packages.
Sales from local telephone service – typically one-fifth of the yearly revenue for Telus – dropped 4.1%. The reason: More customers defected to the cable-based phone service of regional rival Shaw Communications Inc., (SJR).
On Thursday, Rogers Communications Inc. (RCI) the biggest mobile-phone company in Canada, said its wireless revenue grew 18% and noted that wireless data sales advanced 53%. BCE Inc. (BCE) Canada's biggest phone company, reports its results on Wednesday (Nov. 7).
Telus also declared a quarterly dividend of U.S.48 cents per share, an increase of 20% over the prior dividend of U.S.40 cents that had been paid Oct. 1. The new dividend will be paid on Jan. 1.
News and Related Story Links:
- The Vancouver Sun:
Telus Profits Jump Compared to a Year Ago. - Bloomberg News:
Telus's Profit Rises; Sales, Forecast Miss Estimates. - Money Morning Investment Analysis:
Third-Quarter Earnings Seesawed By Commodity Spikes, Credit Woes and International Growth. - Money Morning Investment Analysis:
The Second Quarter Votes are in: Global Gains Trump Domestic Pains. - Money Morning Investment Analysis:
China’s Mobile Phone Competition Will Escalate as Business Grows. - Money Morning News:
Emirates Telecommunication Eyes Controlling Stake in Oman Telecommunications. - Reuters:
Emirates Telecom Says Eyeing Omantel Stake. - Money Morning:
Solid Regional Growth Helps Emirates Telecommunications Report Profits of $1.5 Billion Through Year’s First Nine Months. - Reuters:
Etisalat Q3 profit rises on UAE mobile expansion.
About the Author
Before he moved into the investment-research business in 2005, William (Bill) Patalon III spent 22 years as an award-winning financial reporter, columnist, and editor. Today he is the Executive Editor and Senior Research Analyst for Money Morning at Money Map Press.