Sprint Corporation (S) reported second-quarter 2014 earnings per share of a penny beating the Zacks Consensus Estimate of a loss of 4 cents. The company also recovered from the loss of 4 cents per share reported in the year-ago quarter. Significant improvement in operating profits enabled the company to register earnings growth despite customer losses due to network conversions.
Quarterly operating revenues remained flat year over year at $ 8,789 million and surpassed the Zacks Consensus Estimate of $8,770 million.
Adjusted EBITDA grew 30% year over year to $1.83 billion representing adjusted EBITDA margin of 23.8%, up 40 basis points year over year.
Segment Results
Wireless operating revenues grossed $8,193 million in the quarter, up from $8,178 million a year ago. The company recorded service revenues of $6,937 million, down from $7,242 million in the year-ago quarter. Equipment revenue grossed $1,106 million as against $820 million a year ago.
Sprint lost approximately 334,000 million subscribers in the reported quarter, representing a net loss of 245,000 in retail post-paid and 619,000 in retail pre-paid subscribers. However, the company gained 530,000 in wholesale and affiliate subscribers.
The Sprint platform lost 181,000 post-paid customers. With regard to prepaid subscription, Sprint lost 542,000 users.
At the end of the second quarter, Sprint had approximately 54.6 million customers (including 30.3 million post-paid, 15.2 million prepaid and 9.1 million wholesale and affiliate) compared with 53.6 million in the year-ago quarter.
Wireless post-paid average revenue per unit (ARPU) decreased to $39.16 from $59.87 in the year-ago quarter. Prepaid ARPU increased to $45.15 from $19.17 in the year-ago quarter.
Sprint platform post-paid churn (customer switch) rate was 2.05% in the reported quarter, compared to 1.83% in the year-ago period. On the other hand, Sprint platform prepaid churn improved to 4.44% in the quarter from 5.22% a year ago.
During the second quarter, Sprint sold 5 million smartphones.
Wireline revenues dropped to $746 million from $910 million in the year-ago quarter owing to poor performances by the voice, Internet and cable units.
Liquidity
At the end of the second quarter, Sprint had approximately $4,171 million in cash and cash equivalents compared with $4,970 million in 2013. Net debt increased to $27 billion from $26.6 billion at the end of the first quarter of 2014. The company incurred capital expenditure of $1,416 million at the end of the second quarter.
Guidance
For 2014, Sprint continues to expect adjusted EBITDA in the range of $6.7–$6.9 billion.
Our Take
Sprint currently has a Zacks Rank #3 (Hold). We believe Sprint’s near future remains challenged by the dilutive impact of the Network Vision program and subscriber headwinds due to re-certification of the Lifeline service. However, Sprint’s efforts to taper its losses supported by a strong wireless business with reducing churn, improving ARPU, increasing penetration of handsets, service offerings and spectrum acquisitions from Clearwire and United States Cellular Corporation (USM) transactions are encouraging. Nevertheless, increased competition from carriers like Verizon Communications Inc. (VZ) and AT&T Inc. (T), heavy investments, and continued wireline margin erosion keep us cautious regarding the stock.
Sprint currently has a Zacks Rank #3 (Hold).
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