The third-largest U.S. wireless carrier
Sprint Nextel Corp.
) reported better-than-expected second quarter 2012 results, before
the opening bell. Adjusted loss per share of 7 cents strongly
outpaced the Zacks Consensus Estimate of a loss of 41 cents. Sprint
outperformed our expectations on strong revenue growth and
continued focus on the core Sprint platform.
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Adjusted net loss per share excludes accelerated depreciation of 26
cents and lease cost of 6 cents related to the shutdown of the
Nextel platform as well as impairments of 7 cents related to the
) investment. Including these special items, the company reported
net loss per share of 46 cents, plummeting 64% from the year-ago
Revenue grew 6% year over year to $8.84 billion, outpacing the
Zacks Consensus Estimate of $8.72 billion. The year-over-year
growth was driven by higher wireless service revenue that
compensated for lower wireline revenues.
Adjusted OIBDA (operating income/loss before depreciation,
amortization, asset impairments and abandonments) improved 10% year
over year to $1.4 billion in the reported quarter. This is the
highest year-over-year increase in more than 5 years, primarily
attributable to higher post-paid and prepaid wireless service
revenues that offset higher subsidies and wireless service cost.
operating revenue increased 8% year over year to $8.1 billion.
Sprint gained approximately 283,000 subscribers in the reported
quarter, representing a net loss of 105,000 in retail subscribers
and net addition of 388,000 in wholesale and affiliate subscribers.
Sprint lost 246,000 net post-paid customers during the quarter,
more than the loss of 101,000 customers in the year-ago quarter.
The Sprint platform added 442,000 post-paid customers while the
Nextel platform lost 688,000. With regard to prepaid subscription,
Sprint added 141,000 users, which represents a net addition of
451,000 CDMA customers, partially offset by a net loss of 310,000
At the end of the second quarter, Sprint had 56.4 million customers
(including 32.6 million post-paid, 15.4 million prepaid and 8.4
million wholesale and affiliate) compared with 52.1 million in the
Sprint sold nearly 1.5 million
) iPhones and about 40% of the iPhone customers were new to Sprint.
Wireless post-paid ARPU increased to $60.88 from $56.67 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 to $26.59 from $27.53 in
the year-ago quarter due to the growth in Assurance Wireless
customers, who have lower ARPU on average.
Sprint platform post-paid churn (customer switch) rate improved to
1.69% in the reported quarter from 1.72% in the year-ago quarter
and 2.00% in the prior quarter. This is the best churn rate in the
company's history, driven mainly by a reduction in voluntary churn.
Sprint platform prepaid churn also improved to 3.16% from 3.25% in
the prior-year quarter but deteriorated from 2.92% in the last
quarter. The year-over-year improvement was attributable to
continued improvements in the Virgin Mobile and Boost brands.
On July 15, Sprint launched its 4G LTE networks initially in five
major markets namely Atlanta, Dallas, Houston, Kansas City and San
Antonio, covering 15 cities. In addition, the company introduced
four LTE smartphones - Galaxy Nexus, LG Viper 4G LTE, HTC EVO 4G
LTE and Samsung Galaxy S III.
revenues dropped 9% year over year to $995 million owing to reduced
interconnection charges and continued declines in voice and cable
Sprint has strengthened its balance sheet with approximately $5.9
billion in cash and cash equivalents as of June 2012 compared with
$4.0 billion in the same month last year. Net debt reduced slightly
to $14.5 billion from $14.7 billion at the end of 2011.
The company spent $1.2 billion in the second quarter compared with
$640 million in the year-ago quarter. Sprint generated free cash
flow of $209 million versus $267 million in the year-ago quarter.
For fiscal 2012, Sprint expects net service revenue to grow 4-6%
and adjusted OIBDA of $4.5-$4.6 billion. Capital expenditures are
estimated to be approximately $6 billion.
Sprint is advancing on 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.
Sprint is showing signs of turning around its business and is
focusing entirely on the growth of its core Sprint platform
business. Increasing smartphone sales, attractive product and
service offerings, shutting down of iDEN networks and the roll out
of 4G LTE networks would boost Sprint's wireless growth prospects
going forward. Further, the improving liquidity position makes the
stock attractive for the long term.
However, lofty iPhone subsidies, higher spending on Network Vision
plan and aggravated competitive threats from the major rivals -
Verizon Communications Inc.
) - could be dilutive to future margins and free cash flow.
We currently maintain our long-term Neutral recommendation on
Sprint. For the short term (1-3 months), the stock retains a Zacks
#2 (Buy) Rank.