Sprint Posts First Profit Since 2007 as Customer Losses Ebb

Jul 30, 2014 10:06 am ET

(Updates with analyst’s comment in 10th paragraph.)

July 30 (Bloomberg) -- Sprint Corp. reported its first quarterly profit in more than six years and sales that topped analysts’ estimates as the wireless carrier held onto more subscribers.

The carrier posted fiscal first-quarter net income of $23 million, following 27 straight periods of losses. Monthly subscribers fell by 245,000, the Overland Park, Kansas-based company said today in a statement, better than the loss of 263,000 projected by analysts in a Bloomberg survey. Revenue of $8.79 billion also beat analysts’ average estimate of $8.75 billion.

Sprint helped limit subscriber losses by offering what it calls Framily plans, which feature monthly payment reductions as the size of the group increases. Still, the ongoing customer erosion puts pressure on the carrier’s Tokyo-based owner SoftBank Corp. Masayoshi Son, SoftBank’s chief executive officer, wants U.S. regulators to consider letting Sprint and T- Mobile US Inc. combine to create a stronger No. 3 wireless carrier.

“Good subscriber numbers would be a surprising sign that Framily is working better than people expected,” Colby Synesael, an analyst with Cowen & Co. in New York, said before the results were announced. “This could mean that they might be adding customers by the end of the year,” said Synesael, who rates the shares a hold.

Adding Customers

In fact, Sprint CEO Dan Hesse said on today’s conference call that he expects to be adding contract customers in the last three months of this calendar year.

Sprint shares rose 1.4 percent to $8.11 at 9:59 a.m. New York time, after earlier gaining as much as 2.5 percent. The stock had fallen 26 percent this year through yesterday.

Last quarter, Sprint lost 333,000 monthly subscribers. For the three months ended in June, the loss of 245,000 compares with Verizon Communications Inc.’s 1.4 million new contract customers and more than 1 million new users at AT&T Inc.

Sprint said it added 535,000 tablet customers, helping its overall customer figure. That means the company lost about 646,000 monthly voice customers, according to Philip Cusick, an analyst at JPMorgan Chase & Co.

The average phone bill for Sprint’s monthly subscribers fell 3.3 percent to $62.07, compared with analysts’ average estimate of $61.20. The wireless profit margin expanded to 24 percent, falling short of the 26 percent estimated by analysts.

Growth Trajectory?

Adjusted earnings before interest, taxes, depreciation and amortization rose to $1.83 billion, matching the average estimate among analysts. Jonathan Chaplin, an analyst with New Street Research in New York, said Ebitda is a better gauge of Sprint’s performance than net income because it excludes the benefits of network writedowns.

“From my perspective there’s no evidence from the reported results that this company is on a trajectory to grow; all we have is managements’ comments to go with,” Chaplin, who recommends holding Sprint shares, said in an interview.

The company reiterated its forecast for adjusted Ebitda of as much as $6.9 billion this year.

Separately, Sprint announced today a pay-as-you-go family plan through its Virgin Mobile business. The offer is exclusively through Wal-Mart Stores Inc. and gives users options from very limited $6.98 plans to $104 shared plans that give four users up to 3,000 text messages, 3,000 minutes of talk time and four gigabytes of data. The plan will compete with a four- line, $100-a-month, 10-gigabyte promotion announced this week by T-Mobile.