* Q1 share loss 29 cents, better than expected
* Q1 revenue $8.7 bln, in line with Street view
* CEO defends decision to carry iPhone
* Shares up 1 cent
(Adds executive quotes, analyst quote, share price update)
By Sinead Carew
April 25 (Reuters) – Sprint Nextel’s stronger than
expected wireless operating income helped it post a quarterly
net loss that was narrower than Wall Street estimates.
But investors shrugged off the surprise, which one analyst
attributed partly to slower than expected spending related to a
network upgrade project.
Shares in the No. 3 U.S. mobile provider pulled back from an
earlier 7 percent rise, and were just up 1 cent in the
afternoon.
“While the results from the quarter, from a financials
perspective, were better than anticipated, it appears that none
of the longer term risks around execution and financing have
changed at all,” said Evercore analyst Jonathan Schildkraut.
As well as working to attract new customers and retain
existing ones in a fiercely competitive market, Sprint is also
embarking on a $7 billion project to upgrade one of its two
networks and close down the other.
Investors worried that slower than expected first quarter
spending on the project could signal a delay and creates more
uncertainty for the rest of the year, Schildkraut said.
Sprint’s first quarter capital spending of about $700
million compared with his expectation for about $1.4 billion.
Sprint told analysts on a conference call that the upgrade
would cover 100 million to 120 million people by year’s end.
This was below Schildkraut’s expectation for 123 million.
But Sprint said the project was on track and that it expects
to double spending on it this quarter.
LOWER SPENDING HELPS BOTTOM LINE
While the company added subscribers to its Sprint network in
the quarter, it lost customers from its Nextel iDen network,
which it is in the process of shutting down.
This led to a total net loss of 192,000 subscribers, which
was worse than estimates ranging from a loss of 150,000 to a
gain of 33,000, according to six analysts contacted by Reuters.
Sprint’s biggest rival, Verizon Wireless, a joint venture of
Verizon Communications Inc and Vodafone Group PLC
, added 501,000 subscribers in the quarter and AT&T; Inc
added 187,000.
The weaker customer numbers helped reduce one-time phone
subsidy costs, leading to adjusted wireless operating income
before depreciation and amortization (OIBDA) of $1.05 billion,
well ahead of analyst expectations.
Kevin Roe, an analyst from Roe Equity Research, said he had
expected wireless OIBDA of $860 million.
“You save money when you grow slower,” Roe said. “It’s a
low-quality beat … because wireless growth underperformed.
That’s disappointing for their long-term prospects.”
Sprint’s bottom line was also helped in the first quarter by
stronger than expected customer spending and lower spending by
the company on new customers and subscribers upgrading to new
smartphones.
Sprint Chief Executive Dan Hesse pointed to a combination of
factors including lower spending on existing customers. The
percentage of customers upgrading to a new phone “was much lower
than historical levels” because the company changed its upgrade
policy to reduce expenses, Hesse told Reuters.
“Upgrade expenses are fairly significant,” he said.
Sprint rivals Verizon Wireless and AT&T; have also been
working to reduce upgrade costs.
Hesse has come under fire for his commitment to pay Apple
Inc $15 billion over several years for its popular
iPhone.
He pointed to first quarter numbers to defend his decision.
Sprint sold 1.5 million iPhones in the quarter, of which 44
percent went to new Sprint customers. About 60 percent of the
new customers said they would not have come to Sprint if it did
not carry iPhones, he said.
“The evidence so far supports our decision to carry the
iPhone,” Hesse told analysts on a conference call.
MOBILE ARPU IMPROVES
Sprint, the No. 3 U.S. mobile service provider, posted a
loss of $863 million, or 29 cents per share, compared with a
loss of $439 million, or 15 cents per share, in the year-ago
quarter.
Revenue rose 5 percent to $8.7 billion from $8.3 billion and
was in line with Wall Street estimates of $8.7 billion,
according to Thomson Reuters I/B/E/S.
Sprint’s average monthly revenue per user (ARPU) of $59.88
was ahead of several analysts’ expectations. Citi analyst
Michael Rollins had expected $59 while Robert W. Baird analyst
Will Power had expected $59.48.
Sprint said it expects 2012 adjusted OIBDA to be at the high
end of its previously announced forecast of between $3.7 billion
and $3.9 billion. It forecast full-year net service revenue
growth of 4 percent to 6 percent and said full-year capital
expenditures would be about $6 billion.
Sprint shares were up 1 cent or 0.4 percent at $2.48 on the
New York Stock Exchange in afternoon trading.
(Reporting By Sinead Carew; Editing by Maureen Bavdek and Phil
Berlowitz)
