Kamis, 07 Agustus 2008

KANSAS CITY, Mo. - Sprint Nextel Corp.'s up-and-down road to recovery continued Wednesday as the company reported adjusted second-quarter results that beat Wall Street expectations as well as a slower loss of subscribers.

But the nation's third-largest wireless carrier also said it expected customer losses to ramp back up next quarter and said was selling $3 billion in convertible stock, partly to pay down debt.

Shareholders reacted by hammering Sprint's shares, sending them down $1.21, or 14.2 percent, to close at $7.34 Wednesday.

Stifel Nicolaus analyst Christopher King said in a research note that he's "cautious" about Sprint's ability to create "significant common shareholder value in the near-term," not only because of issues specific to Sprint but also due to broader dynamics in the U.S. wireless industry.

The Overland Park, Kan.-based company reported that it lost $344 million, or 12 cents per share, during the quarter ending June 30. By comparison, the company earned $19 million, or 1 cent per share, during the same period a year ago.

Not counting one-time items, Sprint Nextel said it would have earned 6 cents per share, beating the 3 cents per share expected, on average, by analysts surveyed by Thomson Financial.

The one-time items included $149 million in pretax charges for severance, exit costs and asset impairments and other minor costs tied to its 2005 purchase of Nextel Communications Inc.

Revenue fell 11 percent to $9.06 billion, below the $9.17 billion expected by analysts.

Sprint Nextel's wireless business reported a 12.5 percent decline in revenue to $7.7 billion as it lost a net of 901,000 subscribers, including 776,000 valuable "postpaid" customers who pay monthly bills. That was an improvement from the first quarter, when the company lost 1.1 million subscribers.

Postpaid churn, or the measure of customers starting and stopping service, improved to slightly less than 2 percent -- down from 2.45 percent in the previous quarter -- and about level with where it was a year ago.

In a conference call with analysts, CEO Dan Hesse credited the better churn numbers to efforts to improve customer service and the introduction of the Simply Everything plan, an all-you-can-eat voice and data package that he said has persuaded high-value customers to stay. Hesse also said Sprint was seeing a boost from interest in the Samsung Instinct, a touchscreen device similar to but cheaper than Apple Inc.'s iPhone, which uses AT&T Inc.'s wireless network.

Still, the company said it expected postpaid customer losses to increase in the third quarter because of seasonal pressure. It expects those losses to moderate and that free cash flow will improve throughout the second half of the year.

"We made progress in the quarter but we are far from satisfied," Hesse said. "We've not turned the corner yet and I've been clear that this will take some time."

The company's wireline business, largely used for high-speed Internet customers, reported a 27 percent increase in operating income to $160 million while quarterly revenues fell 2 percent to $1.6 billion.

Sprint Nextel also said Wednesday it plans to sell up to 3 million shares of preferred stock to U.S. institutional buyers to raise an estimated $3 billion. Company officials said the money could be used to reduce debt but refused to comment on the offer during the conference call.

The company said it has $19.5 billion in debt net of cash and marketable securities.

Sprint Nextel, which sits behind AT&T and Verizon Wireless in third place with 51.9 million subscribers, has been hobbled by a combination of technical problems, marketing issues and difficulties integrating operations.

Hesse was hired in December to steer the company back on track and has had some successes. He relocated the company's headquarters in a bid to unify managers who had been working from separate offices and pushed greater focus on investing in customer service, for which Sprint has received criticism for years.

He's also moved to make the customer base itself more selective, raising credit requirements to remove so-called "subprime" customers who have trouble paying their bills and, this quarter, slashing third party distributors by more than 25 percent to remove poor performers. The company also closed 50 retail stores that were not meeting profit targets.

"Collectively these actions will reduce our gross add production (of customers) but should improve our profitability over time," Hesse said, adding that marketing and in-store efforts will be targeted more on keeping existing customers happy than attracting new ones.

He's also tried to help Sprint regain its reputation for technical expertise with such products as the Instinct, which was the fastest-selling device in Sprint history.

In addition, Hesse formed an agreement with Clearwire Corp. to jointly operate a high-speed wireless broadband service using WiMax technology, scheduled to begin selling commercially this fall. The joint operation will save Sprint some of the cost of expanding the service and placate investors who worried that WiMax, originally proposed by former Sprint CEO Gary Forsee, was too experimental.

But the company still is far behind AT&T and Verizon, which each added more than 1 million customers in the second quarter. Even before the earnings were released, Walter Piecyk of Pali Capital said he was doubtful about the company's future.

"There are clear signs of improvement at Sprint yet there remains no clear answer on how the company can ever return to growth or reasonable (profit) margins," Piecyk said on his blog.

Some analysts have recommended that the company jettison its Nextel network, which uses a separate technology from the Sprint network and is responsible for a larger percentage of dropped customers. Hesse on Wednesday remained noncommittal on the issue, saying Sprint would continue investing in the Nextel network but "every option will continue to be considered."


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