S Is a Mess

Updated from 12:14 p.m. EST on Feb. 27.

Sprint Nextel (S - commentary - Cramer's Take) reported numbers that were very weak and included a $30 billion charge. For the quarter just ended, the company posted adjusted EPS of 21 cents on total revenue of $9.85 billion. The lower-than-expected numbers were driven by weakness in the wireless segment, partially offset by some modest improvements in wireline.

The company is not providing detailed guidance at this point but is willing to concede that churn will increase and expects to lose around 1.2 million subscribers during the current quarter. The company expects operating income before depreciation and amortization to come in between $1.8 billion and $1.9 billion, which is below the Street expectations.

In addition to the charge, the company announced a $2.5 billion drawdown on a line of credit and is suspending the dividend to mitigate refinancing risks.

The company is also announcing a $99 unlimited plan being rolled out tomorrow, which includes unlimited data. This is not as bad as some had feared. I had heard that some were thinking that the company might roll out an $80 or $60 unlimited plan.

For the wireless segment, postpaid subscribers declined 683,000, again driven by drop-offs at iDen (Nextel). Management said that it expects to lose 1.2 million subs during the current quarter. Churn was 2.3%. Wireless average revenue per user (ARPU) came in at $58, slightly down from last quarter. The company expects ARPU for the current quarter to come in around $56, down $2 sequentially. Data plans now account for about 20% of total ARPU.

Wireline revenue was flat sequentially at $1.6 billion, driven by growth of IP services, which was offset by declines in legacy voice lines.

As for WiMax, the company is talking to Clearwire (CLWR - commentary - Cramer's Take) again, but there is nothing formal to announce at this point.

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At the time of publication, Thomas had no positions in the stocks mentioned, although holdings can change at any time without notice.

Ben Thomas, CFA, is the founder and managing principal of Waycross Partners. Waycross Partners is a long/short hedge fund that focuses on the technology and health care sectors. Before Waycross, Ben was a portfolio manager and senior equity analyst at INVESCO, where he was part of a team that managed over $20 billion in assets. While at INVESCO, he was the lead manager for the INVESCO Midcap Growth fund as well as the firm?s senior equity analyst covering technology stocks.

Prior to INVESCO, Ben worked for Banc One Securities and Prudential Securities. He graduated from the University of Kentucky with a bachelor?s degree in finance and went on to earn his MBA from Indiana University. Ben is a member of the CFA Institute and serves on the board of directors for the CFA Society of Louisville.