Wednesday, diversified canadian communications company Shaw Communications Inc. (SJR, SJR-B.TO) posted lower net profit in the second quarter, affected by non-operating items, including tax recoveries. However, adjusted earnings and revenues increased during the quarter.

As the global downtrend coerced more out-of-work professionals cocooning in their own homes, demand for cable services - television and Internet connection - flourished. Shaw Communications' second-quarter basic cable subscribers increased 4,273 to 2.27 million, while Digital and Internet customers grew by 106,489 to 1.07 and 26,130 to 1.62 million, respectively. Digital Phone lines were up 50,848 to 719,376 and DTH customers increased 3,657 to 896,633.

Q2 Scorecard

The company's net income for the second quarter was C$156.2 million, down 47.7% from the previous year's C$298.8 million. On a per share basis, earnings plummeted to C$0.36 from C$0.69 in the same quarter of last year.

Non-operating items affected net income in all periods, the company said. The latest quarter results encompassed a tax recovery of about C$23 million, while the prior-year included a tax recovery of about C$188 million related to reductions in enacted income tax rates.

Excluding the non-operating items, net income for the three months ended February 28, 2009, totaled C$128 million, compared to C$113 million in the year-ago quarter.

Funds flow from operations during the quarter rose 9.9% to C$334.5 million from C$304.3 million in the comparable quarter of the previous year.

Consolidated service revenue for the most recent quarter advanced 10% to C$839.1 million from C$763.2 million in the year-earlier quarter, pepped up by customer growth and rate increases.

Jim Shaw, Chief Executive Officer and Vice Chair commented, We continue to thrive in this dynamic, highly competitive and rapidly evolving marketplace by focusing on our relationship with our customer and leveraging our infrastructure with new and improved product offerings.

Further, the company noted that it has also enhanced internet offerings, increasing the speed of all High Speed services by 50% or greater and launched High-Speed Nitro, a new 100 Mbps service utilizing DOCSIS 3.0 technology.

Growth Drivers

The company operates cable television services, high-speed Internet access, Digital Phone and Internet infrastructure services; DTH satellite services and, satellite distribution services in Canada.

The company's Cable division fetched second-quarter service revenue growth of 11.6%, amounting to C$649.6 million, compared to C$581.8 million last year. Service operating income before amortization increased 10.2% to C$313.1 million from C$284.0 million reported in the previous year.

Second-quarter service revenue at the Satellite division grew 4.6% to C$189.6 million from C$181.3 million in the corresponding quarter of the previous year. Service operating income before amortization totaled C$68.3 million, an increase of 3.9%, compared to C$65.7 million in the same quarter of last year.

H1 Results

For the six-month period, the company reported net income of C$279.3 million or C$0.65 per share, compared to C$411.1 million or C$0.94 per share in the prior year period.

Funds flow from operations for the first half grew 9.5% to C$646.5 million from C$590.6 million in the same period of last year.

Consolidated service revenue ascended 9.9% to C$1.66 billion for the six-month ended February 28, 2009 from C$1.51 billion reported in the year-earlier period.

FY09 - What's In Store?

Looking forward for fiscal 2009, the company said it remains on track to achieve its financial guidance for the year, which includes generating free cash flow of at least C$500 million.

While announcing fourth quarter 2008 results, the company had expected service-operating income before amortization in the Cable division to increase about 10%, modest growth in the Satellite division, and free cash flow of at least C$500 million.

Shaw concluded, We believe the resilience of our business and the strength of our strategy should continue to produce solid operational and financial results even in the face of these weaker economic conditions.

Further, the company stated that though it is witnessing weakening economic conditions in Western Canada, it does not see any material changes to its business currently.

Other Minutiae

In March 2009, Moody's upgraded Shaw's corporate debt rating to investment grade. This follows Standard and Poor's upgrade to investment grade in December 2008 and DBRS's upgrade to investment grade in February 2007.

Recently, the company closed a C$600 million offering of 6.50% senior notes due June 2, 2014. Shaw would use the net proceeds for debt repayment, working capital and general corporate purposes.

Dividend

In a separate communiqué, Shaw Communications announced the declaration of monthly dividends of C$0.07 on Class B Non-Voting Participating Shares and C$0.069792 on Class A Participating Shares, payable on each of June 29, July 30 and August 28, 2009 to all holders of record at the close of business June 15, July 15 and August 15, 2009, respectively.

Stock Performance

Shaw Communications shares, which have been trading between $13.40 and $23.48 in the past 52 weeks, are currently trading at $15.75, up 13 cents or 0.83% in NYSE. SJR-B.TO is currently trading at C$19.61, up 30 cents or 1.55% in TSX.

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