Sprint PCS Takes RadioShack News on Chin

Updated from 8:04 a.m. EST

RadioShack's(RSH Quote - Cramer on RSH - Stock Picks) earnings shortfall was shrugged off Friday morning by investors who found solace in the company's confident long-term forecasts.

Not so investors in Sprint PCS(PCS Quote - Cramer on PCS - Stock Picks), which by some estimates gets a quarter of its new business from RadioShack outlets.

While RadioShack was showing a modest gain at midday, Sprint PCS was tanking after weak sales of the company's cell phones and service contracts were cited in the electronics retailer's earnings warning. PCS shares were recently down 32 cents, or 7%, at $4.47.

Fort Worth, Texas-based RadioShack said it expects to earn 58 cents to 60 cents a share in the quarter, slightly below the 65 cents a share that analysts were predicting. The company said sales rose in each month of the quarter compared with a year ago, but not as much as it had hoped. RadioShack didn't provide a specific revenue estimate; analysts on average were expecting about $1.47 billion, according to First Call. The company also cited margin pressure beginning in November.

The warning is the latest in a steady drumbeat of bad news in the retail sector, amid one of the worst holiday shopping seasons in years. Electronics superstore Best Buy(BBY Quote - Cramer on BBY - Stock Picks) also warned in December of sales shortfalls for the crucial fourth quarter.

RadioShack singled out Sprint PCS products in explaining the sales shortfall, along with radio-controlled toys and DVD accessories. Although Sprint PCS does not provide percentage of sales derived through outside retailers, analysts said the chain is the wireless carrier's most significant channel outside of its own retail locations and Web storefront. Some analysts estimate that about 25% of Sprint PCS's customer additions come from RadioShack.

RadioShack also sells phones and services from the nation's largest carrier, Verizon Wireless(VZ Quote - Cramer on VZ - Stock Picks), but made no mention of that company in its earnings preannouncement.

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