Friday, October 23, 2009

Sprint Nextel Corp. (NYSE: S): Third Quarter Earnings Preview 2009

Sprint Nextel (NYSE: S), the third-largest US wireless carrier, will release its third quarter earnings before the market open on Thursday, October 29, 2009. Analysts, on average, currently expect the company to report a net loss of 15 cents a share on revenue of $8.09 billion. In the year ago quarter, the company reported a net loss of 11 cents per share on revenue of $8.81 billion. In the past four quarters, the company has twice missed Wall Street forecasts.

The company has been steadily losing money and customers amid stiff competition. Late in July, the company reported that its second quarter net loss widened to $384 million or 13 cents per share, from $344 million, or 12 cents per share, in the year-ago quarter. Net operating revenues for the quarter were $8.14 billion, down 10% from $9.06 billion in the same period last year and down 1% from the preceding first quarter.Analysts, on average, expected the company to report a loss of 2 cents a share on revenue of $8.12 billion for the quarter.

On a segmental basis, Sprint Nextel's wireless net operating revenues for the quarter declined 9% to $7.00 billion from $7.74 billion in the previous-year quarter. Of the total net operating revenues, wireless service revenues for the quarter declined 9% year-over-year to $6.4 billion. Operating loss for the segment widened to $314 million from $262 million in the same period last year. Wireless post-paid average monthly revenue per user, or ARPU, remained stable at $56, primarily due to growth in fixed-rate bundled plans such as Simply Everything, offset by declines in usage and roaming. Prepaid ARPU for the quarter was approximately $34, compared with $30 in the year-ago period. Post-paid churn in the quarter was 2.05%, up from 1.98% in the year-ago period, but down from 2.25% in the preceding first quarter. Postpaid churn is the measure of these monthly customers dropping service. The company has one of the industries worst churn rates.

The Overland Park, Kansas-based company is losing subscribers at a rapid pace. Even the launch of the highly anticipated Palm Inc. Pre couldn't prevent Sprint Nextel Corp.'s most lucrative customers from defecting to rivals in the second quarter. The wireless operator started selling the much-awaited Palm Pre on June 6 and has exclusive rights to the 'Pre' through at least the end of the year. Sprint Nextel served 48.8 million customers at the end of the second quarter, down 0.61% from 49.1 million at the end of the preceding first quarter. For the latest quarter, total wireless customers declined by approximately 257,000, including net losses of 991,000 post-paid customers - comprising 393,000 CDMA and 598,000 iDEN customers. The company gained a net 938,000 prepaid iDEN customers, offset by net losses of 161,000 prepaid CDMA customers. The company also experienced a net loss of 43,000 wholesale and affiliate subscribers.

The company's wireline revenues for the quarter were $1.43 billion, down 11% from $1.61 billion in the previous-year quarter, as legacy voice and data declines offset Internet revenue growth. On a sequential basis, wireline revenues declined 3% from the first quarter. Operating income for the segment increased to $208 million from $143 million a year ago. Internet revenues were up 10%, reflecting strong enterprise demand for Global MPLS services and the increasing base of cable subscribers who utilize VoIP services. Legacy voice revenues declined 18% year-over-year. Legacy data revenues dropped 32% from a year ago, in part due to customer transitions to IP services.

Recently, Amazon (NASDAQ: AMZN) dropped Sprint as the primary wireless service provider for the latest versions of the Kindle 2 e-book reader. From now on, new Kindle 2s, in the U.S. and worldwide, will be powered exclusively by AT&T’s 3G network. The move is being seen as a major blow to Sprint, as Kindle DX, is $230 more expensive than the international Kindle and, thus, is likely to enjoy lower sales.

However, there are few bright spots. The recessionary environment has actually spurred demand for Boost Mobile, its pre-paid brand which offers unlimited voice and text for $50 per month and is targeted at lower income, and younger customers. The segment added 770,000 subscribers in the second quarter, which represents the highest reported level of prepaid performance by any U.S. carrier in three years. Sprint Nextel is also working hard on nationwide expansion for its fourth-generation (4G) wireless broadband service. The company made history by becoming the first US carrier to launch 4G WiMax mobile broadband services in the U.S. with the official commercial service launch in Baltimore in early October 2008.

Early this month, Sprint unveiled Samsung's First Android-Powered Phone "Samsung Moment." The new mobile will be available beginning November 1. Earlier, Sprint and Taiwan-based mobile phone company HTC Corporation announced the proposed launch of the HTC Hero, the wireless device running on Android software in October.

Last month, shares of the company surged after a London-based newspaper reported that German telecom giant Deutsche Telekom AG is likely to submit a bid for Sprint Nextel Corp.. However, Deutsche Telekom CFO Timotheus Hoettges later suggested that his firm is not interested in acquiring the U.S.-based wireless giant.

Sprint recently announced that it has agreed to acquire its regional affiliate and wireless communications service provider iPCS, Inc. for $24 per share in cash, or about $831 million, including the assumption of $405 million of net debt. The acquisition is expected to be completed by the year end or early 2010. Sprint expects to achieve annual synergies of about $30 million through the proposed transaction and expects the transaction to be free cash flow accretive in 2010.

Meanwhile, federal antitrust authorities approved Sprint's $483 million purchase of prepaid phone services giant, Virgin USA, on Aug. 24. The companies announced the deal July 28. Virgin Mobile USA Inc. shareholders will vote Nov. 24 on the proposed deal.

In terms of stock performance, Sprint shares are up almost 67% since the beginning of the year. Shares of the company lost 13 cents or 3.85% to close at $3.25.

Disclosure: Author doesn’t own any of the stocks discussed here.
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