Aug. 3 (Bloomberg) -- Sprint Nextel Corp., the third-largest U.S. mobile-phone services company, said second-quarter profit fell more than analysts estimated and cut its full-year forecast, sending the shares to their biggest drop in four years.

Profit from continuing operations fell 13 percent to $291 million, or 10 cents, from $334 million, or 22 cents, a year earlier, Reston, Virginia-based Sprint said today. Revenue rose 76 percent to $10 billion, reflecting Sprint Corp.'s $36 billion purchase of Nextel Communications Inc. almost a year ago.

Sprint added 210,000 customers with monthly contracts, missing analysts' estimates for the fourth time since the merger of Sprint and Nextel. Chief Executive Officer Gary Forsee attributed the shortfall to poor marketing as larger competitors Cingular Wireless LLC and Verizon Wireless ran ads touting their network quality and promoted more popular phones.

``Things are not as rosy as expected,'' said Daniela Spassova, a debt analyst at Des Moines, Iowa-based Principal Global Investors, which has about $166.7 billion in assets, including Sprint bonds. ``You generally like people to be a little more conservative and not over-promise, but obviously they have.''

Sprint's shares and bonds declined. The stock dropped $2.38 to $17.75 at 4 p.m. in New York Stock Exchange composite trading and has fallen 16 percent this year.

Forecast

Sprint forecast operating income, which strips out costs for depreciation and amortization, of $12.6 billion to $12.9 billion, down from an earlier forecast of $13 billion. Sales will be $41 billion to $41.5 billion.

Profit excluding some costs was 32 cents a share, missing the 33-cent average estimate of 22 analysts surveyed by Thomson Financial. Sprint spun off the local-telephone business, now known as Embarq Corp., last quarter to focus on wireless and long-distance customers. The business has been treated as a discontinued operation.

Long-distance revenue in the quarter declined 4.7 percent to $1.64 billion. Fifteen analysts predicted total second-quarter sales of $10.4 billion, according to Thomson.

The new wireless contract subscribers trailed the 350,000 estimate of Stifel, Nicolaus & Co. analyst Christopher King. Checks with retailers show Basking Ridge, New Jersey-based Verizon Wireless is taking customers from Sprint, he said.

Turnover

Sprint continued to have the highest turnover rate, or churn, of the top-three U.S. carriers at 2.1 percent. The figure excludes the 6 percent turnover rate for customers who pay for fixed amounts of calling before using their phones. Sprint gained 498,000 customers who pre-pay under its Boost Mobile brand.

Churn will worsen in the third quarter as Sprint puts pressure on customers with lower credit, Chief Operating Officer Len Lauer said on a conference call.

``Obviously we'd like to perform better,'' Lauer said. ``Our story is really about getting churn down.''

Sprint announced plans to improve advertising, refine its target markets, tighten credit requirements and restructure its operations. That may add 7 cents to 8 cents a share to annual profit starting in the second quarter of 2007, the company said.

Sanford C. Bernstein & Co. analyst Jeffrey Halpern in a note today said Sprint's results have probably reached ``peak ugliness.'' He said a recovery may take a while.

No Razr

Sprint lost customers partly because it lacks phones including Motorola Inc.'s Razr, King said. Verizon Wireless sells the Razr and this week announced an exclusive agreement for LG Electronics Inc.'s slim Chocolate music player phone.

Cingular, T-Mobile and No. 5 Alltel Corp. also sell the Razr. Sprint will add Motorola products, including the slim Slvr phone and Q phone with e-mail and business file access, in the fourth quarter, Lauer said.

Sprint also said today it plans to buy back as much as $6 billion in stock during the next 18 months, less than King's estimate of $10 billion.

The repurchase prompted Standard & Poor's to lower its rating on Sprint's debt one level to BBB+ and put it on watch for a further downgrade. Moody's Investors Service also said it may lower its rating, citing the buyback in combination with the poor quarterly performance and intensifying competition.

Sprint's 8.375 percent notes maturing in March 2012 fell 0.3 cent to 111.09 cents on the dollar, yielding 6.01 percent, according to Trace, the bond-price reporting system of the NASD.

Different Customers

Average revenue from a monthly contract subscriber was $62, unchanged from the first quarter and the highest among the top three U.S. carriers. Prepaid customers paid $34, which was $2 less than in the first quarter. Customers spent 12 percent of their monthly bills on extra features including text messages.

Revenue growth stalled as more business customers flocked to a lower pricing plan for Nextel's walkie-talkie style of service, Lauer said. The company has been trying to sell Nextel's push-to- talk service, geared toward corporate clients, alongside Sprint's offerings for consumers.

``The two different target audiences, the Nextel customer base and Sprint customer base, are very far off and hard to combine,'' Principal Global's Spassova said.

(To listen to a replay of Sprint Nextel's conference call with analysts, go to http://www.sprint.com/investors).

To contact the reporter on this story: J. Kyle Foster in New York at kfoster2@bloomberg.net.

Last Updated: August 3, 2006 16:07 EDT