With its stock up more than 165% since this time last year, clearly the market has faith that the Sprint Corp (NYSE:S) effort is for real. And, there’s a fair amount of evidence to that end. The company’s revenue for the last calendar quarter of last year was up 5%, and it was the second straight quarter of top line growth for the beleaguered company. That was a much needed glimmer of hope for Sprint stock, largely driven by some amazingly generous offers designed to attract some defectors from rivals AT&T Inc. (NYSE:T) and Verizon Communications Inc. (NYSE:VZ).
Problem: Sprint can’t sell cheap wireless service at a loss indefinitely. At some point, owners of Sprint stock need to see the company is capable of turning a profit without making deals that cost more than they collect in revenue.
Unfortunately, Wednesday morning’s fiscal Q4 report won’t go a long way in determining just how marketable the company’s wireless service is when it’s priced to let the company at least have a shot at turning a profit. On the other hand, Wednesday morning’s report could go a long way in illustrating just how desperate the cash-hungry company is to needing to do a deal just to survive.
Sprint Earnings Preview
For the quarter ending in March, S is expected to lose four cents per share on $7.93 billion worth of revenue. That bottom line would be drastic improvement on the loss of 14 cents per share of Sprint stock booked for the same quarter a year earlier, though the top line would be a tad less than the year-ago figure of $8.07 billion.
Just for the record though, the company’s track record on the earnings front of late has been hit and miss … more miss than hit.
To his credit, CEO Marcelo Claure inherited something of a mess when he was named CEO in late 2014. The company was debt-laden, and falling behind its competitors on the technology front. Many observers felt at the time the only way S stock could survive was by merging with T-Mobile US Inc (NASDAQ:TMUS). When that deal fell through, some felt Claure had stepped onto a sinking ship.
So far, Sprint stock is still afloat, though it has not been easy. The company is still drowning in debt, and though it has mustered some amazing subscriber growth since late 2015, it has not come without a price. The popular “slash your bill in half” offer is a key part of the reason S continues to log net losses, and while that deal was cancelled last month, its recently unveiled free Fifth Line and (truly) unlimited data plans aren’t cheap for the company to service.
If Claure can’t find the right balance between spending and revenue, he may well find that some Sprint stock holders were right … the ship has been slowly leaking this whole time.
S Stock: 3 Things to Think About
Like all other companies, Sprint is a multi-faceted outfit with a lot of moving parts. There are three matters, however, that dictate the bulk of the future for S stock. Although it’s unlikely they’ll be discussed in much detail — if at all — within the scripted part of the earnings call or within the earnings press release, odds are good these matters will come up during the Q&A portion of the call, or in the media’s post-earnings discussion.
Debt
Kudos to Claure for reworking some of the company’s debt and securing some added liquidity to keep the company afloat while it continues the turnaround effort. It remains to be seen if enough has been done though. This year, $1.3 billion worth of debt is coming due, and $3 billion must be paid off next year. All told, $11 billion worth of debt will be maturing between now and 2020. With the company still failing to turn any sort of a net profit, lenders may not be keen on refinancing Sprint.
Dealmaking
For the past several months, whispers that T-Mobile and Sprint would merge, thus saving Sprint, have been circulating. That’s looking less and less likely now. T-Mobile has made it clear it’s looking to team up with a cable company to create something more along the lines of what Comcast Corporation (NASDAQ:CMCSA) is doing by getting into the wireless business, or what AT&T has in mind with its bid for Time Warner Inc (NYSE:TWX).
Spectrum
For years now, Sprint (and others) have touted that the Sprint’s licensed radio waves are worth more than the company itself. Claure even monetized some of that spectrum by selling it, only to lease it back from the buyer. At some point sooner than later, however, Sprint needs to leverage its entire spectrum portfolio … ideally by using it with customers. If it’s an asset that’s not being used, it’s a useless asset.
Bottom Line for Sprint Stock
While Wednesday’s fiscal fourth-quarter report will be well-watched by S stock holders and non-owners alike, it won’t be a terribly meaningful one in terms of illustrating where the company is with its turnaround effort. That work is a marathon, not a (no pun intended) sprint.
Still, with generous offers being made to lure new customers and no real net progress being made with debt and operating expenses, a lack of fiscal progress during the prior quarter could prove frustrating. Claure has had ample time to get the company at least a little closer to profitability.
Wednesday’s conference call will take place at 8:30 am EST.
As of this writing, James Brumley held a position in AT&T.
