The third-largest U.S. wireless carrier
Sprint Nextel Corp.
(
S
) reported better-than-expected first quarter 2012 results, before
the opening bell. Adjusted loss per share of 17 cents bettered the
Zacks Consensus Estimate of a loss of 42 cents. However, the
adjusted loss was wider than the year-ago loss of 15 cents.
Despite the heavy subsidies associated with
Apple Inc.
(
AAPL
) iPhones, Sprint outperformed our expectations on strong revenue
growth and cost-cutting measures.
Adjusted net loss per share excludes accelerated depreciation of
18 cents related to the shutdown of the Nextel platform and
one-time benefit of 6 cents from the LightSquared spectrum
termination contract. Including these special items, the company
reported net loss per share of 29 cents, plummeting 93% from the
year-ago loss.
Revenue grew 5% year over year to $8.73 billion, outpacing the
Zacks Consensus Estimate of $8.71 billion. The year-over-year
growth was driven by higher wireless service and equipment revenue
that compensated for lower wireline revenues.
Adjusted OIBDA (operating income/loss before depreciation,
amortization, asset impairments and abandonments) deteriorated 20%
year over year to $1.2 billion in the reported quarter. The decline
was primarily due to higher iPhone subsidies, wireless service cost
and lower wireline revenues that offset the positive influences of
higher post-paid and prepaid wireless service revenues.
Segment Results
Wireless
operating revenue increased 7% year over year to $7.9 billion.
Sprint gained approximately 1.08 million subscribers in the
reported quarter, representing a net addition of 297,000 in retail
subscribers and 785,000 in wholesale and affiliate subscribers.
Sprint lost 192,000 net post-paid customers during the quarter,
more than a loss of 114,000 customers in the year-ago quarter. The
Sprint platform added 263,000 post-paid customers while the Nextel
platform lost 455,000. With regard to prepaid subscription, Sprint
added 489,000 users, which represents a net addition of 870,000
CDMA customers, partially offset by a net loss of 381,000 iDEN
customers.
At the end of the first quarter, Sprint had 56.1 million
customers (including 32.8 million post-paid, 15.3 million prepaid
and 8 million wholesale and affiliate) compared with 33 million in
the year-ago quarter.
Sprint sold more than 1.5 million iPhones, versus 3.2 million
sold by
Verizon Communications
Inc.
(
VZ
) and 4.3 million by
AT&T Inc.
(
T
). About 44% of the iPhone customers were new to Sprint.
Post-paid ARPU increased to $59.88 from $56.17 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
history. Prepaid ARPU declined to $26.82 from $28.39 in the
year-ago quarter due to the growth in Assurance Wireless customers,
who have lower ARPU on average.
Total post-paid churn (customer switch) increased to 2.01% in
the reported quarter from 1.81% in the year-ago quarter and 1.98%
in the prior quarter. This increase resulted from the higher
temporary deactivations due to non-payment of bills or violations
of terms and conditions.
Prepaid churn improved to 3.61% from 4.36% in the previous-year
quarter and 3.68% in the last quarter. The improvement was
attributable to the continued growth of Assurance Wireless
customers. Prepaid churn also gained from better churn rates of
Virgin and Boost Brands.
Wireline
revenues dropped 11% year over year to $998 million, owing to
reduced interconnection charges and continued declines in voice and
cable IP volume.
Liquidity
Sprint has strengthened its balance sheet with approximately
$7.1 billion in cash and cash equivalents as of March 2012 compared
with $3.7 billion in the same month a year ago. Net debt remained
stable with the prior quarter at $14.7 billion.
The company spent $800 million in the first quarter, compared
with $555 million in the year-ago quarter. Sprint generated free
cash flow of $138 million versus $178 million in the year-ago
quarter.
Guidance
For fiscal 2012, Sprint expects net service revenue to grow 4-6%
and adjusted OIBDA to be on the high end of the previous guidance
of $3.7-$3.9 billion. Capital expenditures are estimated to be
approximately $6 billion.
Sprint is advancing its Network Vision plan as expected. The
company expects to add about 12,000 sites by the end of this year
and complete the majority of its deployment in 2013. In addition,
Sprint continues to expect the initial deployment of 4G Long-Term
Evolution (LTE) services in six markets, including Atlanta,
Baltimore, Dallas, Houston, Kansas City and San Antonio by mid
year.
Our Take
Despite the economic downturn, Sprint is trying to taper its
losses on the back of strong wireless business with reducing churn,
improving ARPU, increasing penetration of handsets, advanced
product and service offerings, and unlimited data plans. In
addition, the company continues to benefit from the Network Vision
plan and the sale of iPhones that are expected to register new
highs in its wireless business.
Nevertheless, stiff competition, heavy investments, lofty iPhone
subsidies and continued wireline margin erosion keep us cautious on
the stock.
We currently maintain our long-term Neutral recommendation on
Sprint. For the short term (1-3 months), the stock retains a Zacks
#3 (Hold) Rank.
APPLE INC (
AAPL
): Free Stock Analysis Report
SPRINT NEXTEL (
S
): Free Stock Analysis Report
AT&T INC (
T
): Free Stock Analysis Report
VERIZON COMM (
VZ
): Free Stock Analysis Report
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