UPDATE 3-Sprint raises earnings forecast; shares rise

Thu Jul 26, 2012 8:43pm IST

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* Q2 rev $8.84 bln vs Wall Street view $8.73 bln
    * Posts customer net loss of 246,000 vs analyst view 203,000
    * Ups 2012 operating income view to $4.5bln-$4.6bln vs prev
view $3.7bln-$3.9bln
    * Oper income helped by higher customer spending, lower
customer costs
    * Shares rise 13.6 percent to $3.82 on NYSE


    By Sinead Carew
    July 26 (Reuters) - Sprint Nextel Corp raised its
earnings forecast for the year and reported higher-than-expected
quarterly revenue as its wireless customers increased spending,
and its shares rose more than 13 percent.
    Investors saw the results as the best sign so far that Chief
Executive Dan Hesse might turn around the No. 3 U.S. mobile
service even though Sprint reported steeper than expected
customer losses and a wider quarterly loss from charges related
to the planned shutdown of its old Nextel network.
    Sprint, which has been bleeding customers for years, is in
the middle of a costly network modernization project which
involves upgrading its Sprint network at the same time as it
decommissions the Nextel iDen network it bought in 2005.
    The company had warned it would suffer steep customer losses
this year from its iDen network, once famous for its
walkie-talkie style feature. It said on Thursday that more of
these customers than expected were moving to the Sprint network.
  
    "The subscriber loss was greater than expected but it was
because they were more aggressive in getting those iDen
customers off the network and I don't think its a bad thing ...
because it will help them shut down even more cell sites," said
BTIG analyst Walter Piecyk.
    Smaller rival MetroPCS Communications also posted
stronger than expected results Thursday, sending its shares up
31 percent to $8.23 on New York Stock Exchange. 
    Sprint reported a net loss of 246,000 subscribers in the
quarter, compared with the average expectation of about 203,000
from five analysts contacted by Reuters. 
    The customer numbers included losses of 688,000 subscribers
on the Nextel network. However, 60 percent of the customers
leaving Nextel moved to the Sprint network.
    However weak customer numbers actually helped Sprint's costs
because it pays subsidies to handset makers such as Apple Inc
for each new phone. Like its rivals it discounts the phones for
customers who commit to a two-year contract.
    On top of this Sprint said its average revenue per user for
the Sprint brand was its best ever at $63.38 and compared with
$59.07 in the year ago quarter. 
    As a result Sprint was able to increase its target for 2012
operating income, excluding special items, depreciation and
amortization, to a range of $4.5 billion to $4.6 billion from
its previous forecast of $3.7 billion to $3.9 billion.
    Wells Fargo analyst Jennifer Fritzsche said the
second-quarter results "more than any in recent history --
illustrate that the fruits of Sprint's labor are finally being
seen." 
    R. W. Baird analyst William Power said Sprint's second
quarter earnings before interest, tax, depreciation and
amortization of $1.45 billion exceeded his estimate of $1.03
billion. Several other analysts also had estimates closer to $1
billion. 
    In contrast, larger rivals Verizon Wireless  
and AT&T Inc both added customers in the quarter. 
    Sprint, which committed to spend $15.5 billion on Apple Inc
 iPhones over the next few years, said that iPhone sales
were slightly lower in the second quarter than in the first
quarter.
    Sprint executives said on a conference call with analysts
that they had included an assumption of a new iPhone model this
year in its earnings target even though it was quick to point
out that it did not know when the next iPhone would launch.
    In contrast to its bigger rivals, Sprint is sticking to
offering unlimited mobile internet usage for a flat monthly fee,
helping it boast an advantage over AT&T and Verizon Wireless,
which meter customer data usage.
    However the unlimited data offering limits Sprint's ability
to offer new shared data plans that its bigger rivals are
providing so customers can have one subscription for several
devices including smartphones and tablets like Apple's iPad.
    Sprint CEO Hesse told analysts to "stay tuned" on how Sprint
expects to improve usage of devices like iPad on its network.  
    The company's quarterly loss widened to $1.37 billion, or 46
cents per share, from $847 million, or 28 cents per share, a
year earlier. The results included a $782 million depreciation
charge for the network decommissioning and an impairment charge
related to its Clearwire Corp venture.
    Net operating revenue rose to $8.84 billion from $8.31
billion. Analysts expected $8.73 billion, according to Thomson
Reuters I/B/E/S.
    Sprint shares were up 13.35 percent at $3.82 in late morning
trading on the New York Stock Exchange after rising as high as
$3.95 earlier in the session. By 11 AM investors had already
exchanged 130 million shares making it the stock's busiest day
since October 10 2011.
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