Investors Ignore the Elephant on Sprint's Call - TheStreet

Investors Ignore the Elephant on Sprint's Call

The company won't discuss its touchy executive situation, but the stock rises as costs fall.
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Despite a pending executive shuffle,

Sprint

(FON)

gave investors a glimmer of hope Wednesday with reports that its wireless business is showing solid progress.

On a conference call with analysts Wednesday, the company declined to discuss the botched management succession plan that would have Gary Forsee,

BellSouth's

(BLS)

No. 2 executive, replace Sprint's top two executives, Bill Esrey and Ron LeMay.

Investors nonetheless found reason to believe that the flood of red ink from

Sprint PCS

(PCS)

is ebbing, as executives promised break-even results for the wireless unit in 2003. And while the nation's No. 4 long-distance company continued to see sales declines in its key business services division, those declines may be partially offset by new contracts from defecting

WorldCom

customers.

Sprint managed to swing to a profit in the fourth quarter despite flat sales numbers, thanks to cost cuts. The company says it expects revenue to decline slightly this year, led by a mid-single-digit percentage slide in its sales to businesses.

Shares were up 5% in midday trading as investors took some comfort in the fact that Sprint's executive turmoil seemed separate from the company's fundamentals.

"They did reasonably well," says UBS Warburg analyst John Hodulik, who has a neutral rating on the stock. UBS was an underwriter of a recent Sprint debt offering. "But cost-cutting is not a long-term strategy. They need to show some initiative on their growth plans."

Of course, that sort of planning requires leadership, and that comes back to an issue that has some investors a little skittish on Sprint.

Directors, concerned about a potential investigation into executive tax shelters by the Internal Revenue Service, have called for the removal of Esrey and LeMay, according to a report in

The Wall Street Journal

.

The would-be replacement, Sprint veteran Forsee, was tapped for the job, but his current employer, BellSouth, is challenging the hire, saying it represents a breach of Forsee's noncompete agreement.

The almost bizarre management situation loomed over Wednesday's conference call. Lame-duck CEO Esrey declined to discuss the situation while promising to talk about these undefined "other issues" when there was something to announce.

"If the management issue cleared up, I'd be more inclined to buy rather than sell," said one Wall Street hedge fund manager who had no position in the stock. "If the economy picks up, Sprint will be a big beneficiary."

That's a couple of big "ifs."

On a positive note for networking gearmakers, Sprint spared its 2003 equipment budget from cuts. This provides an additional

ray of hope for the beaten-down suppliers such as

Nortel

(NT)

and

Lucent

(LU)

that saw similar signs of spending stability from other big telcos in recent weeks.