Sprint Singing a Happier Tune
Updated from 4:55 p.m. EDT
Sprint
gave investors some modest assurances of its fiscal health Monday, saying it would be cash-flow positive sometime next year at both its conventional phone unit and its wireless business.
The Overland Park, Kan.-based phone company met analysts' financial targets and assured the markets that its funding situation is in hand. But the company again slashed its capital spending targets in an effort to trim its budget.
The company's wireless unit,
Sprint PCS
(PCS)
, posted a narrower-than-expected first-quarter loss and said it was on track to meet subscriber-acquisition targets. The wireline phone business,
Sprint Phone Group
(FON)
, beat first-quarter earnings estimates by 2 cents and said its expected 2002 cash requirements are fully funded. Shares of both units rallied, the wireless stock climbing 8% in after-hours trading to $10.81 and the phone stock adding 3% to $13.80.
'Upbeat'
"It seems like they may be turning the corner, though no one will believe them until the second quarter," says Thomas Weisel Partners analyst Peter DeCaprio, who has a buy rating on the stock. "But for them, this was very upbeat; they have historically been the downer of downers." Weisel has no underwriting ties to Sprint.
The company said that although it was "encouraged by its first-quarter performance," it wouldn't materially change its financial guidance for either FON or PCS. But Sprint did slash its 2002 capital spending estimate at the phone unit to $2.7 billion from $3.5 billion, suggesting more bad news is ahead for phone gearmakers like
Lucent
(LU)
and
Nortel
(NT)
. The company said 2002 capital spending at the wireless unit would be $3.4 billion, which is in line with what management forecast in February.
Sprint also said it hasn't drawn down any of the bank line it took out earlier this year when it was shut out of the commercial paper market, but that its investment bankers are still mulling opportunities to sell assets like the phone book businesses.
Wireless numbers were mostly in line with estimates. Sprint PCS' $640 million EBITDA estimates easily bested company forecasts of $600 million reiterated on March 6. The earnings before interest, taxes, depreciation and amortization number shows that PCS hasn't been touched by the profit troubles at competitor
AT&T Wireless
(AWE)
that forced that carrier to slash EBITDA estimates by $100 million, to $775 million.
Otherwise, the company's performance went as planned, with 725,000 new customers, in the middle of its 700,000 to 750,000 predicted range. Sprint PCS lost $1 in ARPU sequentially, with just $60 average revenue per user per month in the quarter, and it also saw somewhat high churn rates of 3%. Both numbers were expected on Wall Street.
Phoning It In
On the FON side, Sprint says it continued to see both a decline in the number of local phone lines and a decline in total minutes of use due to the recession and a greater shift to wireless services. Yet unlike most of its competitors, Sprint has a wireless business that can benefit from the shift. In fact, Sprint says about a third of its long-distance revenues come from its wireless operations, which help to partially offset the traditional phone service declines.
Sprint also said it has no plans to answer rival
WorldCom's
(WCOM)
new consumer sales plan. WorldCom is expected to offer a $50 per month unlimited local and long distance service to consumers. The plan involves renting parts of the local Bell network and outsourcing some of the billing processes to another telco. Sprint says two years ago it tried to offer a profitable local and long distance phone service using the Bell network, but had to kill the project due to the losses.
To be sure, cutting losses -- as at the futuristic data network money pit known as ION -- has been a hallmark at Sprint in recent years. It remains to be seen whether the company can deliver on its promise and cut its way out of the red ink by next year.
Senior writer
Tish Williams contributed to this report.
