Sprint Nextel narrowed its loss for the fourth quarter due to cost-cutting efforts and substantial layoffs, beating analyst estimates and sending the company’s stock up more than 20 percent in early morning trading.
Still, there was plenty of room for caution in the company’s results as its revenue declined and it continued to lose customers.
“There was nothing in the quarter that gave us any outward signs of optimism … nothing that could be construed as hopeful,” says Chris King, senior telecom services analyst at Stifel Nicolaus Telecom Equity Research.
“In terms of the reaction of the stock, the market is up, so a lot of the stocks are up. Certainly some of it relating to Sprint is a relief rally, as well – the quarter was not a complete disaster,” he says.
Sprint Nextel posted a net loss of $1.62 billion, or 57 cents per share, from $29.3 billion, or $10.31 per share, last year on subscriber losses and a $1 billion goodwill impairment, while last year’s results took a heavy hit from write-downs of Sprint’s acquisition of Nextel.
Excluding the goodwill impairment and other one-time charges, the company lost 1 cent per share, beating analyst estimates of a loss of 3 cents per share.
However, revenue fell 14 percent to $8.43 billion on continued losses in the company’s customer base. Net wireless customers declined by 1.3 million for the fourth quarter, including 1.1 million postpaid customers and 314,000 prepaid users. The loss was offset by a slight increase in wholesale and affiliate subscribers, which rose by 146,000.
For the year, Sprint’s subscriber base shrunk to 49.3 million, an 8.36 percent decline from last year’s figure of 53.8 million. The company expects subscriber losses to improve in 2009, banking its hopes on the release of the Palm Pre, the first real challenger to the iPhone, which is carried by AT&T.
Sprint earlier won the exclusive rights to sell the Palm Pre, but King thinks over time this may do little to boost the company’s bottom line. “The concern we have is that they paid out the nose for [the Palm Pre] and that you’ll see that reflected in margins,” he says.
The company’s postpaid churn rate rose slightly to 2.16 percent, compared with 2.15 percent in the third quarter, but fell compared to last year’s fourth quarter, when the churn rate was 2.29 percent. Sprint reported that the sequential increase in churn was driven by deactivations of business lines due to ongoing economic turmoil, with the year-over-year decrease due to an improvement in the credit quality of its customers. Prime customers comprise about 84 percent of Sprint’s subscriber base, compared with 79 percent last year.
Sprint continued cost-cutting measures to stem the flow of cash out of the company, announcing in January that it would slash 8,000 jobs, or 14 percent of its workforce (story here).
“In tough economic times, we’re generating substantial cash and reducing costs to ensure we remain financially sound. We already have the cash on hand to be able to meet our debt service requirements at least through the end of 2010,” said Sprint CEO Dan Hesse. “With this financial stability, we can build on the improvements we’ve made in customer care, strengthen our brand and maintain continued strong network performance in 2009.”