February 12, 2010 / 1:22 PM / 8 years ago

UPDATE 4-Telus quarterly profit hit may set up 2010 gains

* Q4 EPS C$0.49 vs C$0.89 year earlier

* Revenue dips 0.4 percent to C$2.44 billion

* Telus stands by 2010 forecasts

* Adds 122,000 wireless customers, below estimates (Adds CFO’s comments, closing stock prices)

By Susan Taylor

OTTAWA, Feb 12 (Reuters) - Telus Corp T.TO posted a big drop in quarterly profit on Friday, ending a year of heavy spending and restructuring that analysts say positions Canada’s No. 2 phone company well for 2010.

Telus, which launched a high-speed wireless network in November, more than doubled the amount it spent on restructuring in the fourth quarter, compared with its year-before quarter, and shelled out more money for its pension plan.

“2009 stacked up to be a year of investment and I think they’re going to recoup that going forward,” said Troy Crandall, a telecoms analyst at MacDougall, MacDougall & MacTier.

“They reiterated their outlook for 2010, which was nice to see...It’s 2010 that counts.”

The company expects accelerated wireless data growth and increased demand for its Internet television service in 2010 as well as C$135 million in savings from its efficiency drive.

Telus also said it sees significant growth in free cash flow as it shaves C$400 million from its capital spending budget following the rollout of its wireless network.

“Telus is like a big boat and it takes time for it to turn around,” said Desjardins Securities analyst Maher Yaghi in an interview.

“We think the turnaround for Telus is only going to happen really in the second half of 2010 and 2011 - that’s when you start to see the big cash flows coming back and potentially dividend increases and buybacks.”

Telus reiterated its mid-December forecast of revenue of C$9.8 billion to C$10.1 billion in 2010 and earnings per share of C$2.90 to C$3.30. On Friday, it reported 2009 revenue of C$9.6 billion and earnings per share of C$3.14.

“I would describe 2009 as a transition year,” Chief Financial Officer Robert McFarlane said in an interview.

“We had a record number of concurrent major investments...in order to drive future growth.”

PROFIT HIT BY ONE-TIME ITEMS

Telus’s quarterly earnings per share fell well short of analysts’ expectations, but the discrepancy is likely due to numerous adjustments for one-time items, Crandall said.

Excluding debt redemption and income tax adjustments, Telus said it earned 46 Canadian cents a share in the fourth quarter, compared with 80 Canadian cents a share a year earlier.

Revenue dipped 0.4 percent to C$2.44 billion.

Analysts on average had expected earnings of 55 Canadian cents a share on revenue of C$2.44 billion, according to Thomson Reuters I/B/E/S.

Net profit fell to C$156 million, or 49 Canadian cents a share, from C$285 million, or 89 Canadian cents a share, a year earlier.

Restructuring costs rose to C$77 million from C$38 million.

Crandall said the results were generally in line with his expectations, but said that wireless subscriber growth lagged consensus estimates of 155,000 new customers.

Telus added 122,000 wireless customers, down 18 percent from a year earlier, but 109,000 were higher value, post-paid customers.

The average monthly revenue per wireless customer fell 7.7 percent to C$57.38, as declines in voice and roaming revenue more than offset gains in data traffic, the Vancouver, British Columbia-based company said.

Wireless revenue rose by 3.1 percent to C$1.2 billion, while wireline revenue was down 3.8 percent at C$1.2 billion.

It cost about 2.2 percent more to attract wireless customers in the quarter on higher smartphone subsidies, advertising and promotion costs.

Retention costs also rose, by C$28 million to C$133 million, as more customers switched to smartphones.

Investors remain cautious on Telus after several disappointing quarters and on concerns over competition from new wireless carriers, UBS said in a recent research report.

McFarlane said new rivals have been slow to launch and “are not expected to be a meaningful factor over the first half of 2010.”

New entrants including Globalive, Quebecor’s QBRa.TO Videotron and DAVE Wireless are this year set to take on the Big Three incumbent carriers Telus, Rogers Communications RCIb.TO and BCE Inc BCE.TO.

Telus shares fell 0.5 percent to close at C$33.62 on the Toronto Stock Exchange on Friday and dropped 1.14 percent to $30.38 in New York. The stock has lost about 5 percent of its value over the past 12 months. ($1=$1.05 Canadian) (Reporting by Susan Taylor; Editing by Peter Galloway)

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