Sprint: Can You Hear Me Now?
Before Sprint's new CEO Gary Forsee dropped off the line for a few seconds, the nation's fourth largest long-distance company reported a quarterly profit amid a backdrop of eroding wireline voice revenues -- its bread and butter -- and continued woes in its Internet and wireless businesses in the slowing economy (see Sprint Posts Profit, Drops Guidance).
Sprint's landline (FON) group reported first quarter (GAAP) earnings of $2.06 a share for the first three months of 2003, compared with earnings of 32 cents a share during the year-ago period. The company's pro forma earnings per share were 34 cents a share during the quarter. Sprint's earnings were helped considerably by the sale of its directory publishing business, which added $1.46 a share, and the adoption of a new accounting principle, which added another 29 cents a share.
Despite the extra oomph from the directory services sale, Sprint's revenues were relatively disappointing, shy of Wall Street's mark in both revenues and earnings per share. The company reported net operating revenues of $3.6 billion during the first quarter, down from $3.9 billion during the first quarter of 2002. Wall Street analysts surveyed by Multex.com Inc. had been expecting Sprint to report EPS of 35 cents on revenues of $3.7 billon.
The service provider cut its debt by $1.56 billion during the quarter and upped its cash by more than $1 billion. At the end of the quarter, Sprint had about $2.10 billion in cash, but much of that came from the $2.22 billion in proceeds that came from the sale of the directory publishing business.
As its executives gave highlights from their respective divisions, it became clear that Sprint's got plenty of work to do. The company noted a 16 percent decline in voice revenues (which were $1.29 billion) and a 5 percent decline in data revenues. Meanwhile, the company's total access lines declined 1.9 percent during the quarter and its long-distance revenues dropped 14 percent.
Also, it turns out that WorldCom Inc.'s new/old incarnation, MCI (Nasdaq: MCIT), is putting up more of a fight than Sprint bargained for. Sprint's executives now say they won't continue to give quarterly updates on how much business they're stealing from the scandal-prone carrier, a possible admission that there's very little to gloat about these days. "Recently we've seen [MCI/WorldCom] -- both through leveraging aggressive pricing and very, very flexible contract terms -- begin to have some degree of success in maintaining some of the existing business," concedes Tim Kelly, president of Sprint's global markets group.
Elsewhere in the company, Sprint's DSL subscriber growth kept chugging along. It added 34,000 lines during the quarter, giving it 185,000 total DSL lines in service.
In the wireless arena, financial results were disappointing. Sprint PCS (NYSE: PCS) customers are using more hours per month -- 11.5 hours during the first quarter, compared to 11 hours during the prior quarter -- while getting less money per month from each subscriber. Sprint PCS said its average revenues per user dropped to less than $59 during the first quarter, compared to $62 during the fourth quarter of 2002.
Sprint expects its overall revenues to drop 6 to 7 percent for the year for the FON group. It predicts that its full-year earnings for 2003 will be between $1.30 and $1.35 a diluted share. This new estimate includes increased pension and retiree benefit costs, along with other items like the shareholder litigation charge recorded in the first quarter. The company says its local telecommunications division revenues are expected to be flat or slightly down, while its global markets division revenues will likely fall 8 to 10 percent. The company's capital expenditures are expected to be about $2 billion in 2003, with $1.3 billion of that coming from the local telecommunications division.
Managing all of those expectations is the new CEO, Forsee, who addressed investors at the end of the call. Forsee said Sprint is on solid financial ground and getting better, while promising he will help the company reach its goals, despite having one arm tied behind his back (see Sprint Gets a 'Restricted' CEO). "An integrated approach, with our portfolio, also affords us great cost synergy potential," Forsee clarified.
— Phil Harvey, Senior Editor, Light Reading