Sprint (S) Up 3.7% Since Earnings Report: Can It Continue?
A month has gone by since the last earnings report for Sprint Corporation S. Shares have added about 3.7% in that time frame, outperforming the market.
Will the recent positive trend continue leading up to its next earnings release, or is S due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Sprint Betters Estimates in Q3 Earnings, Revenues Beat
Sprint reported better-than-expected financial results in the third quarter of fiscal 2017.
Net Income
On a GAAP basis, Sprint's third-quarter fiscal 2017 net income was $7,162 million or $1.79 per share against a net loss of $479 million or 12 cents in the year-ago quarter. However, after adjusting a one-time tax gain, fiscal third-quarter net loss was 2 cents compared with the Zacks Consensus Estimate of a loss of 4 cents.
Revenues
Quarterly total revenues totaled $8,239 million, down 3.6% year over year and above the Zacks Consensus Estimate of $8,178.2 million. Service revenues were $5,930 million, down 6.2%. Equipment revenues totaled $2,309 million, reflecting an improvement of 3.6%.
Operating Metrics
Operating expenses were $7,512 million compared with $8,238 million in the year-ago quarter. Operating income was $727 million compared with $311 million in the year-ago quarter. Adjusted EBITDA was $2,719 million compared with $2,450 million in the prior-year quarter. Adjusted EBITDA margin was 45.9% compared with 38.7% in the prior-year quarter.
Cash Flow & Liquidity
In the quarter under review, Sprint generated $1,166 million of cash from operations compared with $650 million in the prior-year quarter. Adjusted free cash flow was $397 million compared with a loss of $646 million in the year-ago quarter.
As of Dec 31, 2017, Sprint had $4,440 million of cash and marketable securities compared with $2,870 million at the end of March 2017. Total debt outstanding was $32,825 million compared with $35,878 million at the end of March 2017.
Wireless Segment
Total segment revenues were $7,928 million, down 2.9% year over year. Postpaid revenues totaled $4,297 million, down 8.3%. Prepaid revenues were $993 million, up 0.8%. Wholesale revenues were $329 million, up 19.6%. Equipment revenues totaled $2,309 million, reflecting an increase of 3.6%.
Operating income was $509 million compared with $317 million in the year-ago period. Adjusted EBITDA was $2,759 million compared with $2,397 million in the year-ago quarter. Adjusted EBITDA margin was 49.1% compared with 40.3% in the prior-year quarter.
Wireline Segment
Segment revenues were $393 million, down 20.9% year over year. Voice revenues totaled $94 million, down 38.6%. Data revenues were $29 million, down 29.3%. Internet revenues were $254 million, declining 9.6%. Other revenues were $16 million, down 27.3% year over year.
Operating income was $229 million compared with a loss of $9 million in the year-ago quarter. Adjusted EBITDA was at a loss of $30 million against $48 million in the year-ago quarter. Adjusted EBITDA margin was a negative 7.6% against 9.7% in the prior-year quarter.
Subscribers Statistics
In the reported quarter, Sprint witnessed net additions of 3,85,000 wireless customers, including postpaid net gain of 2,56,000, prepaid net additions of 63,000 and wholesale and affiliate net additions of 66,000. Sprint's focus on delivering the most attractive value proposition in wireless resulted in 1,84,000 postpaid phone net additions, marking the 10th consecutive quarter of net additions.
As of Dec 31, 2017, Sprint had 54.581 million wireless connections, up 2.4% year over year. This includes 31.942 million postpaid, 8.997 million prepaid and 13.642 million wholesale customers.
Quarterly total retail postpaid churn rate was 1.80% compared with 1.67% in the year-ago quarter. Total retail prepaid churn rate was 4.63% compared with 5.74% in the year-ago quarter. Postpaid phone churn was 1.71% compared with 1.57% in the prior-year quarter. Total retail postpaid ARPU (average revenue per user) was $45.13 compared with $49.70 in the year-ago quarter. Total retail prepaid ARPU was $37.46 versus $33.97 in the year-ago period.
Fiscal 2017 Outlook
For fiscal 2017, Sprint raised its previous outlook. Sprint anticipates operating income of $2.5 billion to $2.7 billion, which is above its previous expectation of $2.1 billion to $2.5 billion. The company expects adjusted EBITDA to be around the mid-point of its prior expectation of $10.8 billion to $11.2 billion. Capital expenditures are projected in the range of $3.5-$4 billion, in line with the previous expectation.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates. There have been two revisions higher for the current quarter compared to six lower.
Sprint Corporation Price and Consensus
Sprint Corporation Price and Consensus | Sprint Corporation Quote
VGM Scores
At this time, S has a strong Growth Score of A, though it is lagging a bit on the momentum front with a C. Charting a somewhat similar path, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Based on our scores, the stock is more suitable for value and growth investors than momentum investors.
Outlook
Estimates have been broadly trending downward for the stock and the magnitude of these revisions indicates a downward shift. Notably, S has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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