Sprint Corp (NYSE:S) has dished out 140% gains over the course of the past 12 months, and analysts have issued a string of upward revisions to S stock and earnings projections heading into Wednesday’s fiscal-fourth-quarter earnings report. Clearly, the market was expecting big things.
They got what they wanted … unless they didn’t.
Though per-share profits came up short of estimates, turnaround stories are tough to handicap, and income can be a little uneven. The real litmus test is revenue, and in that regard the market liked what it saw.
However, S stock was pounded by 10% after the opening bill, suggesting many traders aren’t happy with what they saw.
Sprint Earnings, By the Numbers
For the quarter ending in March, Sprint booked a loss of seven cents per share on $8.5 billion in revenue. The numbers were mixed relative to expectations. Analyst were collectively looking for a loss of four cents per share of S stock and sales of $7.93 billion. Sprint has struggled with earnings estimates of late, coming up short of expectations more often than not for the past couple of years despite revenue growth during that time.
Last quarter’s figures, however, were notably better than year-ago numbers, when the wireless company lost 14 cents per share on $8.07 billion worth of revenue.
Sprint added 180,000 prepaid subscribers last quarter, and 42,000 postpaid customers. Postpaid churn was a respectable 1.58%.
CEO Marcelo Claure commented on the Q4 results:
“Sprint took a big step forward in the second year of our turnaround plan. Net operating revenues returned to growth and cost reductions accelerated, leading to the highest operating income in a decade and a return to positive adjusted free cash flow.”
Revenue growth stemming from subscriber additions has never been a problem for Claure, who took the helm of a struggling, debt-laden Sprint back in late 2014. By early 2015 he had put the pedal to the metal on promotions, with its “Cut your bill in half” offer enticing defectors from rivals like AT&T Inc. (NYSE:T) and Verizon Communications Inc. (NYSE:VZ). That promotion, and all the follow-on offers like it, worked too. By early 2015, habitual net losses of customers flipped, and Sprint began to add new users at a pace AT&T and Verizon could only envy.
That has not changed in the meantime.
That subscriber-base growth hasn’t been cheap or easy though, as most owners of S stock know all too well. Being willing to give away more than the competition is has translated into persistent losses for Sprint, and that didn’t change last quarter. Though last quarter’s EBITDA of $2.7 billion, and net operating income rolled in at $470 million. Still, the company booked a GAAP loss of $283 million.
A key part of that loss stems from the massive debt load Sprint is carrying, and the quarterly interest payments it must make.
It has been a contentious point for the company. Last quarter, its $35.9 billion worth of debt and capital lease obligations cost Sprint $631 million, worth of interest payments. Although the company says it’s working on a plan to abate the impact of its debt load, little progress seems to be being made there; its total liabilities grew on a year-over-year basis.
And something does need to happen on that front sooner than later. This year, $1.3 billion worth of that 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.
One solution may be to monetize the company’s hoard of licensed spectrum. It could either sell it to rivals, or sell it to a company for cash and then lease it back from its new owner.
Whatever the case, Sprint’s got more than its fair share of radio frequencies, which is an asset, but much of it remains unmonetized and unused.
Looking Ahead for S Stock
Sprint didn’t provide any per-share earnings guidance for the full year or for the quarter currently underway, but it did say it expects 2017’s EBITDA to roll in between $10.7 billion to $11.2 billion, translating into operating income of between $2 billion to $2.5 billion. The company has budgeted $3.5 billion to $4 billion this year for capital expenditures, aimed at upgrading its network to make it more competitive.
Sprint’s undetailed outlook hasn’t prevented analysts from offering outlooks of their own though. These pros were calling for a loss of 26 cents per share of S stock on sales of $2.22 billion for the quarter currently underway.
For the full year, those same analysts expect the company to generate $32.7 billion worth of revenue, and turn that into a loss of 24 cents per share of S stock. Those figures may change now that analysts have the first quarter’s numbers in hand.
The company’s backward and forward results, however, are a secondary part of the story; most shareholders have resigned themselves to the idea that Sprint can’t dig its way out of its expense hole. From this point on, most shareholders expect — and want — Sprint to merge with another company as a means of salvation. T-Mobile US Inc (NASDAQ:TMUS) was the odds-on favorite partner for a while, but T-Mobile has made it clear it’s looking to team up with a cable company instead.
That leaves Sprint’s plausible future unclear, particularly after this morning’s report.
As of this writing, James Brumley held a position in T stock.