Sprint Q1 Loss Narrower Than Expected - Analyst Blog

Sprint Corporation S reported first quarter 2014 adjusted net loss per share of 4 cents, narrower than the Zacks Consensus Estimate of a loss of 6 cents. The loss incurred has also tapered from 21 cents loss per share a year ago.

The company reported net loss of $151 million, representing a 77% improvement from a loss of $643 million in the year-ago quarter. The betterment can be attributed to the significant rise in adjusted EBITDA.

Quarterly operating revenues inched up 1% year over year to $8,875 million and surpassed the Zacks Consensus Estimate of $8,717 million.

Adjusted EBITDA of $1.84 billion increased 22% year over year in the first quarter owing to accelerated wireless adjusted EBITDA growth.

Segment Results

Wireless operating revenues were $8,254 million in the quarter, up from $8,089 million in the year-ago quarter. The company recorded service revenues of $7,255 million, down from $7,276 million in the year-ago quarter due to decline in retail service revenues and impact of the Nextel platform shutdown.

Sprint lost approximately 383,000 million subscribers in the reported quarter, representing net loss of 595,000 retail subscribers and gain of 212,000 wholesale and affiliate subscribers.

The Sprint platform lost 231,000 post-paid customers. With regard to prepaid subscription, Sprint lost 364,000 users.

At the end of the first quarter, the company had approximately 54.9 million customers (comprising 30.5 million post-paid, 15.8 million prepaid and 8.6 million wholesale and affiliate) compared with 55.2 million in the year-ago quarter.

Wireless post-paid average revenue per unit (ARPU) increased to $62.98 from $62.47 in the year-ago quarter. Prepaid ARPU increased to $27.07 from $26.08 in the year-ago quarter.

The Sprint platform post-paid churn (customer switch) rate was 2.18% in the reported quarter, compared to 2.09% in the year-ago quarter. The Sprint platform prepaid churn deteriorated to 4.35% from 3.26% in the prior-year quarter.

During the reported quarter, Sprint sold 5 million smartphones, representing 84% of the total handset devices sold in the first quarter.

Wireline revenues dropped to $770 million from $893 million in the year-ago quarter owing to poor performances by data, Internet and cable units.

Liquidity

At quarter end, Sprint had approximately $6,364 million in cash and cash equivalents compared with $6,275 million in first quarter 2013. Net debt increased to $26.6 billion from $25.5 billion at the end of 2013. The company incurred capital expenditure of $1,488 million in the first quarter compared with $1,381 million in the corresponding year-ago quarter.

Guidance

For 2014, the company expects adjusted EBITDA in the range of $6.7–$6.9 billion, up from previous forecast of $6.5-$6.7 billion. Capital expenditure estimate is maintained at $8 billion.

Our Take

Sprint currently has a Zacks Rank #3 (Hold). We believe Sprint's near future remains challenged by the dilutive impact of the Network Vision program and subscriber headwinds due to re-certification of the Lifeline service.

However, Sprint's efforts to taper its losses supported by a strong wireless business with reducing churn, improving ARPU, increasing penetration of handsets, service offerings and spectrum acquisitions from Clearwire and United States Cellular Corp. USM transactions remain accretive. Nevertheless, increased competition from carriers like Verizon Communications Inc. VZ and AT&T Inc. T heavy investments, and continued wireline margin erosion keep us cautious on the stock.