Sprint Nextel
(
S
) reported better-than-expected fourth quarter 2011 results.
Adjusted loss per share of 35 cents bettered the Zacks Consensus
Estimate of a loss of 38 cents.
Adjusted net loss excludes the negative impact of $241 million,
or 8 cents per share related to asset and impairment charges,
investment in Clearwire and severance costs. On a GAAP basis, the
company reported net loss per share of 43 cents, which deteriorated
39% from the year-ago quarter's loss of 31 cents primarily due to
heavy subsidies on iPhone.
Net loss for fiscal 2011 improved 17% year over year to 96
cents.
Consolidated operating revenue for the fourth quarter grew 5%
year over year to $8.7 billion, and was in line with the Zacks
Consensus Estimate. The year-over-year growth was driven by higher
wireless service and equipment revenue that compensated for the
lower wireline revenues. For the full year, consolidated operating
revenue rose 3% year over year to $33.7 billion.
Quarterly adjusted OIBDA (operating income/loss before
depreciation, amortization, asset impairments and abandonments)
plunged 36% year over year to $842 million. The decline was
primarily due to higher iPhone subsidies and sales expense,
wireless service cost and lower wireline revenues that offset the
positive impacts of higher postpaid and prepaid wireless service
revenues. Adjusted OIBDA for the full year was down 10% year over
year to $5.1 billion.
Segment Results
Wireless
operatingrevenue increased 7% year over year to $7.9 billion.
Sprint gained approximately 1.6 million subscribers in the reported
quarter, representing a net addition of 668,000 in retail
subscribers and 954,000 in wholesale and affiliate subscribers.
Growth was driven by strong wireless service revenues, backed by
record post-paid average revenue per user (ARPU) that increased by
$3.69, representing the largest ever year-over-year growth across
the domestic wireless industry.
Sprint gained 161,000 net post-paid customers during the
quarter, which almost tripled from a net gain of 58,000 customers
in the year-ago quarter. The company added 539,000 post-paid
subscribers from the CDMA network, while it lost 378,000 customers
from the iDEN network. With regard to prepaid subscription, Sprint
added 507,000 customers, which represents a net addition of 899,000
CDMA customers, partially offset by a net loss of 392,000 iDEN
customers.
At the end of the fourth quarter, Sprint had 55 million
customers (including 33 million post-paid, 14.8 million prepaid and
7.2 million wholesale and affiliate) compared with 49.9 million in
the year-ago quarter.
Post-paid ARPU increased to $58.59 from $55.26 in the year-ago
quarter, boosted by higher monthly recurring revenue. This is the
largest year-over-year post-paid ARPU growth in the company's
record. Prepaid ARPU declined year over year to $26.62 in the
fourth quarter from $27.95 in the year-ago quarter.
Post-paid churn was 1.98% in the reported quarter, compared with
1.86% in the previous-year quarter. The decline resulted from the
temporary impact of higher deactivations of customers due to
non-payment of bills or violations of terms and conditions.
Prepaid churn improved to 3.68% from 4.93% in the previous-year
quarter. The improvement was attributable to the growth of
Assurance Wireless customers. Prepaid churn also gained from better
churn rates of Virgin and Boost Brands.
Wireline
revenues dropped 14% year over year to $1.1 billion, as erosion in
interconnection charges, voice and Internet revenues that declined
12.4% and 14.2%, respectively. Data revenues declined 16.3% year
over year.
Liquidity
Sprint enjoys a strong balance sheet, with approximately $5.5
billion in cash and cash equivalents at the end of fiscal 2011
compared with $5.2 billion at the end of 2010. Net debt in the
full-year 2011 remained flat from the year-ago level at $14.7
billion.
The company spent $2.9 billion in the year 2011 compared with
$1.9 billion in the year-ago. Sprint generated a free cash flow of
$429 million, compared with $2.5 billion in the year-ago
period.
Guidance
Sprint expects 2012 adjusted OIBDA to be in the range of $3.7 -
$3.9 billion. Full-year consolidated net service revenue growth is
expected to range between 4-6%. For 2012 capital expenditures are
estimated to be approximately $6 billion. The company expects debt
maturities of $300 million in May 2013 and $1.5 billion due in
October 2013.
Sprint expects to add approximately 12,000 sites by the end of
2012 and complete the majority of its Network Vision deployment in
2013. In addition, Sprint expects to roll out 4G LTE by mid 2012.
Houston, Dallas, San Antonio and Atlanta, Kansas City and Baltimore
will be among the first six major cities to launch.
Our Analysis
Despite the adverse impacts of iPhone subsidies Sprint has
managed to gain strongly from its wireless business with improved
churn, ARPU, increased penetration of handsets, advanced product
and service offerings and unlimited data plans.
With the launch of
Apple
's (
AAPL
) iPhone 4 and iPhone 4S, coupled with the Network Vision plan, the
company is expected to register new highs in its wireless business
given the growing demand for new age devices. Nevertheless,
increased competition from market leader like
AT&T
(
T
), heavy investments, funding issues, iPhone subsidies and
continued wireline margin pressure keep us cautious on the
stock.
We are currently maintaining our long-term Neutral
recommendation on Sprint. For the short term, the stock retains a
Zacks #3 (Hold) Rank.
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AAPL
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S
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T
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