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Shaw slow cable subscriber erosion in latest quarter, raises 2014 cash forecast

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TORONTO - Shaw Communications Inc. (TSX:SJR.B) continued to lose subscribers in its cable and satellite television services in its latest quarter, but the declines were less than analysts expected and balanced by strong growth in Internet subscriptions.

Shaw chief operating officer Jay Mehr told analysts Thursday that it was the best fiscal third quarter for the Calgary-based company since 2010.

"I think it's fair to say we're pleased overall with the continuation of the shift in the marketplace that's happening here in Western Canada," Mehr said. "For sure, our Internet gain of over 12,000, is a terrific proof-point of our differentiated Internet strategy."

Shaw has been in a pitched battle with Telus Corp. (TSX:T), which has been making inroads in Shaw's residential customer base by offering bundled phone, wireless and fibre-optic television services.

Despite calls for it to add a conventional wireless service to it product lineup, Shaw has opted to deploy less expensive WiFi hot spots throughout its territories that its customers can use to access mobile services.

Shaw said Thursday that its base of cable subscribers declined by 12,075 to just under 1.98 million as of May 31 — only about half the decline that had generally been expected during Shaw's fiscal third quarter.

The decline in Shaw's core customer base also was smaller than the 20,758 lost in the December-February quarter, 29,619 lost in the September-November period and the 29,522 lost between June and Aug. 31 of last year, when Shaw's 2013 financial year ended.

What's more, Shaw's cable revenue was up two per cent compared with the third quarter of 2013, rising to $845 million and accounting for about 62 per cent of the company's total revenue, as a result of price increases announced last September.

"Overall, the results indicate that the company has found a way to stem losses in its core cable business without resorting to heavy discounting, which is encouraging," Desjardins analyst Maher Yaghi wrote in an analysis Thursday.

In addition, Shaw's Internet business added 12,399 customers in the quarter — better than the 7,700 that had been generally expected — bringing the total to nearly 1.92 million. On a less positive note, Shaw added 4,834 only digital phone lines — fewer than the 9,000 anticipated — bringing the total to about 1.37 million.

Still, the higher revenues coupled with cost-cutting initiatives that Shaw announced during the quarter allowed the company to raise its previous forecast for 2014 annual free cash flow to above $650 million and to maintain its monthly dividend at about 9.2 cents per class B share.

The company's stock was unchanged Thursday, closing at $26.35. Several analysts have said Shaw's stock is relatively expensive compared with its peers, in part because of its healthy dividend and because of the possibility — although small — that it could be a takeover target for Toronto-based Rogers Communications.

Shaw's net income under standard accounting was $228 million, or 47 cents per share, down from $250 million or 52 cents per share. Analysts had estimated 49 cents per share.

Shaw chief executive Brad Shaw told analysts in conference call after markets closed that the company is balancing its financial results with revenue growth through its various services, including through mobile apps that deliver content to Shaw customers through the WiFi hotspots.

"We are evolving from a traditional cable and media company to a network and content experienced leader delivering connectivity and programming across multiple platforms and services," Shaw said.

He also said that a multi-year transformation plan — announced in April — aims to improve customer satisfaction but with a reduced cost structure and more energized workforce.

The previously announced reduction of 400 management positions will be complete by the end of July, Shaw said.

— Follow @DavidPaddon on Twitter.

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