Sprint Guidance: Good to Go?
At an investment community meeting in New York today, the telecom giant announced it expects its financial results for the fourth quarter this year, as well as for all of 2003, to be better than previously forecast. The company also said it has cut its capital spending and has doubled its expected free cash flow (see Sprint Offers Guidance).
The company’s shares leaped almost 7 percent following the news today, rising nearly a dollar to $14.55 a share.
For the fourth quarter, Sprint said it expects its FON Group unit, which is comprised of its long distance, local, and data businesses, to earn between 37 and 39 cents per share on revenues of $3.7 billion. That’s up from the company’s previous guidance of 34 to 36 cents earnings per share. For the full year 2002, the company now expects to make $1.35 to $1.37 per share on total revenue of $15.2 billion, up from the previous earnings per share range of $1.32 to $1.34.
The nation’s third largest long-distance carrier and fourth largest wireless provider said it could raise earnings expectations for 2002 due to cost cuts and a favorable industry settlement on pay-phone access charges that should add about 2 cents a share to its earnings.
For 2003, the company expects revenues to be about $15 billion, down from the $15.2 billion it expects this year. But it anticipates that earnings per share will rise to between $1.40 and $1.45.
Sprint’s improved forecast came only a day after the company announced that it is slashing 2,100 jobs, or nearly 3 percent of its workforce (see Sprint to Slash 2,100 Jobs), as part of its plan to restructure operations and reduce costs. This was the second round of layoffs in less than a month for Sprint. In November, the company announced that it was cutting 1,600 jobs from its wireless division, Sprint PCS (NYSE: PCS) (see Sprint Cuts Costs and Jobs).
"The kinds of steps that we’ve had to take with respect to people are very distasteful to us,” Sprint president and COO Ron LeMay said at today’s conference. “But when you’ve got to do it, you’ve got to do it, and… our employees understand that.”
Jobs are not the only things being cut at Sprint. The company said today that by the end of 2002, it expects to have spent $100 million less in capital expenditures than previously anticipated. Sprint says it expects capital spending for 2002 to be $2.2 billion, and it expects spending to rise slightly next year to $2.3 billion.
These reductions in capital spending, along with tax refunds, and improved EBITDA in both its FON Group and the PCS Group, have helped increase Sprint’s cash position, the company says. It now expects to report $1 billion in free cash flow for 2002 -- double its last forecast amount.
While industry observers today were pleased with Sprint's cost-cutting measures and its improved forecasts for free cash flow, many caution that the company, like the rest of the industry, still faces many challenges. “These are just projections,” points out Davenport & Co. LLC analyst F. Drake Johnstone. “The question is whether or not they manage to reach those goals... They’re doing a good job of managing expenses, but nothing indicates that they’re turning the corner or that the industry is turning the corner.”
“It’s definitely good news for Sprint,” agrees Jeff Kagan, an independent analyst based in Georgia. “But it’s more a matter of managing the company… in a bear economy, than an industry turn-around.”
LeMay, however, insists that, if anything, Sprint has been too conservative in its forecasts. “My guess is that the economy will be better than is implicit in the guidance we’ve given,” he said.
— Eugénie Larson, Reporter, Light Reading