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(Reuters) - Canada's Shaw Communications (SJRb.TO) posted a quarterly profit that fell short of forecasts as a softening advertising market hurt its media division and its cable arm lost subscribers, sending its shares lower.
Shares of the Calgary-based company slipped 2 percent on Thursday after profit and sales figures missed analyst expectations. The company later announced a 5 percent increase to its dividend, which pared some of the stock's decline.
Shaw, whose operations are concentrated in Western Canada, is fending off aggressive competition from Telus, an ambitious telecom rival encroaching on Shaw's traditional television market with an Internet-based alternative.
Shaw lost 22,768 basic cable subscribers in the quarter, despite digital customers additions of 59,566. Internet customers rose by 10,685 and digital phone lines were up by 22,969.
"The losses in cable subs are accelerating, which is not a positive indicator," Desjardins analyst Maher Yaghi said. "Shaw has been very aggressive on promotions, which could help subscriber numbers in the next quarter but could come with an associated decline in margins."
RBC Capital Markets analyst Drew McReynolds had forecast that Shaw would lose 10,000 basic cable customers. He expected the company to add some 50,000 digital customers, 13,000 Internet accounts and 32,000 telephone lines.
"Subscriber growth reflects intense competition but all things considered is holding up," McReynolds said in a note.
The company had free cash flow of C$119 million, down from C$154 million in the prior quarter.
Net income from continuing operations rose to C$202 million, or 43 Canadian cents per share, in the three months to the end of November, compared with C$17 million, or 3 Canadian cents per share, a year ago. Revenue rose 19 percent to C$1.28 billion.
Analysts, on average, had expected earnings of 47 Canadian cents per share, on revenue of C$1.31 billion, according to Thomson Reuters I/B/E/S.
In the year-ago period Shaw took a charge of C$197 million related to the acquisition of broadcasting assets from bankrupt Canwest with which it created Shaw Media and C$58 million in restructuring expenses.
The media division had sales of C$299 million, a 3 percent decline from a year ago on a pro-forma basis. Shaw blamed the decline on "the softening of the advertising market as a result of the economic uncertainty".
Cable segment revenue rose 4 percent to C$792 million, helped by overall customer growth and price changes but limited by a rise in programming costs and other expenses.
"We continued to grow despite a volatile economic and competitive environment," Shaw CEO Brad Shaw said in the earnings statement.
The company will pay a monthly dividend equivalent to an annual 97 Canadian cents per Class B share as of late March.
While Shaw has largely restricted itself to its established footprint in Canada's west, Telus has in recent years built a national wireless network that gives it access to populous eastern cities including Toronto, Ottawa and Montreal.
Shaw last year decided not to build a wireless network with spectrum it bought in a 2008 government auction and will instead run a Wi-Fi network providing Internet access to customers in "hotspots" such as cafes.
The company launched a trial of its Wi-Fi network in December in Calgary, Edmonton and Vancouver and expects a launch by Spring.
The decision to shy away from mobile means Shaw cannot offer the fourth leg of a bundling offer including television, landline phone and Internet.
Shares of Shaw Communications, which have lost about 4 percent of their value over the last three months, were down 0.9 percent at C$20.29 by midday Thursday on the Toronto Stock Exchange.
Additional reporting by Shounak Dasgupta in Bangalore; Editing by Frank McGurty