Sprint Ahead of Ests, Loss Tapers

Zacks

Leading U.S. wireless carrier Sprint Nextel Corp. (S) reported fourth quarter and full year 2012 results, before the opening bell.

The company witnessed adjusted loss per share of 30 cents in the fourth quarter, narrower than the Zacks Consensus Estimate of a loss of 46 cents. The results compared favorably with the adjusted loss per share of 35 cents recorded in the fourth quarter of 2011. Sprint performed better than our expectation on strong revenue growth and continued focus on the core Sprint platform.

Quarterly revenues grew 3.2% year over year to $9,005 million, surpassing the Zacks Consensus Estimate of $8,918 million. The growth is attributed to higher wireless service revenues along with strong sales of smartphones.

For full-year 2012, Sprint posted loss of $1.44 per share, on revenues of $35.3 billion.

Adjusted OIBDA (operating income/loss before depreciation, amortization, asset impairments and abandonments) improved 2.1% year over year to $860 million in the reported quarter, resulting in OIBDA margin of 10.7%.

Segment Results

Wireless operating revenue increased 4.5% year over year to $8,275 million in the quarter.

Sprint lost approximately 337,000 subscribers in the reported quarter, representing a net loss of 94,000 in retail subscribers and 243,000 in wholesale and affiliate subscribers.

The Sprint platform added 401,000 post-paid customers while the Nextel platform lost 644,000. With regard to prepaid subscription, Sprint added 525,000 users while the Nextel platform lost 376,000 prepaid customers.

At the end of the fourth quarter, Sprint had approximately 56 million customers (including 32 million post-paid, 16 million prepaid and 8 million wholesale and affiliate) compared with 55 million in the year-ago quarter.

Wireless post-paid average revenue per unit (:ARPU) increased to $61.47 from $58.59 in the year-ago quarter, boosted by higher monthly recurring revenue. Prepaid ARPU remained at same level of $26.69.

Sprint platform post-paid churn (customer switch) rate was 1.98% in the reported quarter, compared with 1.99% in the year-ago quarter. Sprint platform prepaid churn improved to 3.02% from 3.07% in the prior-year quarter. The year-over-year improvement was primarily aided by continued enhancement of product and service offerings.

During 2012, Sprint sold nearly 6.6 million Apple Inc’s (AAPL) iPhones and about 40% of the iPhone customers were new to Sprint.

Wireline revenues dropped 10% year over year to $949 million owing to poor performances in the voice, Internet and cable units.

Liquidity

At the end of 2012, Sprint had approximately $6,351 million in cash and cash equivalents compared with $5,447 million, last year. Net debt increased to $16.1 billion from $14.7 billion at the end of 2011. The company incurred a capital expenditure of $4,261 million in 2012.

Guidance

For full-year 2013, Sprint expects adjusted OIBDA in the range of $5.2 billion to $5.5 billion.

Other Telecom Stocks

The largest U.S. mobile service provider Verizon Communications Inc. (VZ) reported fourth quarter 2012 results on Jan 22. The company posted adjusted earnings of 45 cents per share, below the Zacks Consensus Estimate of 54 cents and also lagged the year-ago figure of 52 cents.

Ace communications firm AT&T Inc (T) reported fourth-quarter 2012 financial results on Jan 24. The company’s adjusted earnings per share of 44 cents missed the Zacks Consensus Estimate of 47 cents. Comparing year over year, the results improved 10% from adjusted earnings of 40 cents.

Our Take

Sprint currently holds a Zacks Rank #3, implying a Hold rating. We believe that Sprint is focusing on narrowing its losses in the coming quarters on the back of strong wireless business with reducing churn, improving ARPU and increasing penetration of handsets.

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.

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