Wednesday, February 3, 2010

Sprint Nextel Corp. (NYSE: S): Q4 Earnings Preview 2009

Sprint Nextel Corp. (NYSE: S), the third-largest US wireless carrier, is scheduled to release fiscal fourth-quarter 2009 earnings before the market open on Wednesday, February 10, 2010. Analysts, on average, expect the company to report a loss of 19 cents a share on revenue of $8.02 billion. In the year ago quarter, the company reported a loss of 11 cents per share on revenue of $8.43 billion.

Sprint Nextel Corporation offers wireless and wireline communications products and services to consumers, businesses, and government users in the United States and internationally. Its Wireless segment provides wireless mobile voice and data transmission services on networks that utilize CDMA and iDEN technologies.

The company has been losing money and subscriber at a rapid pace amid stiff competition. In October, the Overland Park, Kansas-based company posted third quarter loss and missed Wall Street expectations. Net loss totaled $478 million or $0.17 per share, wider than net loss of $326 million, or $0.11 per share, in the same quarter last year. Net operating revenues for the quarter declined 9% to $8.04 billion from $8.82 billion. Analysts, on average, expected the company to report loss of $0.15 per share on revenue of $8.09 billion.

The company's wireless net operating revenues in the third quarter fell 8% to $6.93 billion from $7.54 billion last year, due to fewer post-paid subscribers, partially offset by more prepaid subscribers. In the Wireless segment, the company served 48.3 million customers at the end of the third quarter of 2009, and net retail subscribers declined by a total of 135,000 and net wireless customers declined by approximately 545,000. Meanwhile, the company gained a net 801,000 prepaid iDEN customers, offset by net losses of 135,000 prepaid CDMA customers. Post-paid churn in the quarter was 2.17%, compared to 2.15% in the year-ago period, while prepaid churn dropped to 6.65% from last year's 8.16%. Wireline net operating revenues declined 10% to $1.41 billion from $1.58 billion last year, as voice and data declines more than offset 5% growth in Internet revenues. Voice revenues for the quarter declined 14% from last year.

The company generated $664.0 million in the third quarter, after a $200.0 million pension contribution. The company continues to expect to generate positive free cash in the fourth quarter. Sprint also expects both post-paid and total subscriber full-year losses should improve in 2009 from last year, and expects fiscal 2009 capital expenditures to be less than $1.7 billion.

At the end of the third quarter 2009, Sprint had $5.9 billion in cash, cash equivalents and short-term investments and $1.6 billion in borrowing capacity available under its revolving bank credit facility, for total liquidity of $7.5 billion.

Sprint has been in the midst of a turnaround plan to reduce its costs and improve customer retention. In December, the wireless service provider said it would slash up to 2500 jobs by the end of the year, as part of plans to cut annual costs by at least $350 million. The company also expects to incur charges of around $60 million to $80 million in the current quarter related to severance and other related costs. It also paid down $1.0 billion of the outstanding loan amount under its $4.5 billion revolving credit facility. With this action Sprint Nextel no longer has an outstanding balance.

Sprint Nextel Corp., in December, also announced the completion of its acquisition of iPCS, Inc. for about $831 million. In November, it completed the acqusition of Virgin Mobile USA, strengthening its position in the growing prepaid segment, bringing together the iconic Virgin Mobile brand with Spint's successful Boost Mobile business.

Despite weaknesses in other segments, the company's pre-paid brand, Boost Mobile has continued to attract subscribers. It offers unlimited voice and text for $50 per month and is targeted at lower income, and younger customers. During the first three quarters of 2009, Boost has generated over 2.1 million net adds, which is more prepaid net adds than any carrier reported on a full-year basis in 2008. Sprint Nextel is also working hard on nationwide expansion for its ourth-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.

The company's stock currently trades at a forward P/E (fye 31-Dec-10) of 13.14 and PEG Ratio (5 yr expected) of 1.64. In terms of stock performance, Sprint shares have gained 39 percent over the past year.

Full Disclosure: None.
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