Sprint Posts a Profit

Sprint Corp. (NYSE: FON) today offered a slim ray of hope in what has been an otherwise disastrous earnings season. Amid continuing concern over a management shakeup at the company, Sprint reported a fourth-quarter profit and predicted that profits, as well as its capital spending, will stabilize or possibly even rise in 2003 (see Sprint Reports on Q4).

The carrier’s reported $39 million fourth-quarter net income across its long-distance, local, and wireless operations was a substantial improvement over the $1.23 billion loss it suffered during the same quarter a year ago. Operating income for the quarter also improved dramatically, jumping to $388 million from last year's operating loss of $1.78 billion, mainly due to restructuring and asset impairment charges.

Consolidated revenue for the quarter rose to $6.53 billion from $6.52 billion last year.

For the full year 2002, the company saw its consolidated revenues rise by 4 percent from 2001, jumping to $26.63 billion from $25.52 billion. During the year, the company says it improved its free cash flow by more than $5.8 billion, bringing it to $1.31 billion by year-end.

“The company’s done a very good job in controlling its expenses,” says CIBC World Markets analyst Tim Horan.

Everyone was not impressed, however. “Based on the lowered expectations, Sprint had a soft but decent quarter,” independent analyst Jeff Kagan writes in an email. “Cost cutting saved the day, but that can only go so far. You can't cut and shrink your way to greatness. They have to start growing again.”

Sprint’s FON Group, which includes long-distance and local operations, reported a profit of 28 cents a share, compared with a $1.06 loss per share last year. Before one-time items, the wireline division’s earnings were 37 cents a share, just missing the Wall Street consensus of 38 cents per share. For the same period last year, the FON Group reported earnings of 23 cents a share.

Sprint, which like other long-distance providers has been hit hard by wireless and Internet substitution, reported an 8 percent decline in long-distance revenues for the quarter. To keep its customers on the Sprint network, the company said it is in trials with a product that integrates wireline and wireless services.

While overall demand is still weak, Sprint said it's gaining a lot of accounts migrating away from distressed carriers like WorldCom Inc. (OTC: WCOEQ). Over the next couple of years, the company said it expects to rake in nearly $400 million on customers migrating from such carriers.

Sprint PCS (NYSE: PCS), the carrier’s wireless unit, reported a fourth-quarter loss of $255 million, or 25 cents per share, compared with a loss of $328 million, or 33 cents per share, for the same period last year. Excluding one-time items, the division reported a loss of 18 cents a share for the quarter, beating street estimates of a 22 cents per share loss. PCS’s operating revenues for the quarter rose to $3 billion from $2.8 billion.

The wireless unit also added 250,000 new customers during the quarter, 50,000 to 100,000 more new customers than analysts had expected. It ended the year with 14.8 million direct customers.

The company reiterated its 2003 financial forecast (see Sprint Guidance: Good to Go? ), saying that its FON group will earn between $1.40 and $1.45 a share for the year, but that the wireline business will see a revenue decline of a mid-single-digit percentage. Included in this estimate is an increase in pension costs, the carrier said, which are currently expected to reduce earnings by 11 percent.

Capital spending will increase from $2.18 billion in 2002 to $2.3 billion this year in the FON Group, but will decline in the company’s wireless division from $2.67 billion last year to between $2.3 billion and $2.4 billion.

Following the earnings report today, Sprint saw its stock price jump nearly 6 percent to $13.10 a share. The stock surge came despite the fact that Sprint has yet to address many of the questions surrounding an ongoing management shakeup at the company.

While the carrier has admitted that it is seeking to replace its current CEO William Esrey with BellSouth Corp.'s (NYSE: BLS) vice chairman Gary Forsee, it hasn’t addressed reports that both Esrey and Sprint president Ronald LeMay are being pushed out by the board (see Sprint Considers Management Changes). Citing unnamed sources, a Wall Street Journal article today states that the two have been pressured to leave after using a questionable tax shelter, now under investigation by the Internal Revenue Service.

After a week of speculation over whether the management changes might reflect corporate accounting issues or a possible merger, analysts say the report provided relief to many because there was no evidence of larger problems (see Sprint Faces Management Muddle). “I think it alleviated a lot of investment fears,” says CIBC's Horan.

Meanwhile, BellSouth is trying to block Forsee from accepting the CEO position at Sprint. A court hearing on the issue will be held later today.

— Eugénie Larson, Reporter, Light Reading
ohub 12/5/2012 | 12:42:40 AM
re: Sprint Posts a Profit Is it because Sprint got some customers from WorldCom?

Optical Hub
BlueWater66 12/5/2012 | 12:42:08 AM
re: Sprint Posts a Profit Anyone know the Peak and Average capacity on their network? I was in a meeting last week where someone (hearsay) said that on some of their key long distance and key metro links it was 70% average and over 100% peak. This doesn't sound right. What does a carrier do when peak capacity exceeds 100%?

Also, I would assume that long distance DWDM systems are reasonable to upgrade, with the addition of more wavelengths in existing racks. But, I would also assume that the "bandwidth management" elements such as Grooming Switches or Digital Cross Connects would get stressed sooner and require new systems.

Thoughts? I live in the physical layer component world, so it is always interesting to get a perspective of our "customer's customer".
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