Sprint’s Earnings Show Turnaround Progress for CEO Claure

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Sprint Corp. Chief Executive Officer Marcelo Claure showed progress in his turnaround plan for the unprofitable carrier with better-than-estimated quarterly results and the third consecutive gain in subscribers.

While Sprint suffered a setback in total-user rankings in the quarter ended in June -- dropping to fourth place behind T-Mobile US Inc. -- the return to user growth after seven years of customer losses is one of the primary goals in Claure’s efforts.

Claure, who was brought in by majority owner SoftBank Group Corp. last August, announced his biggest management shake-up Monday with the hiring of Tarek Robbiati as finance chief and Günther Ottendorfer as chief operating officer in charge of technology. The CEO has relied on half-price offers and tablet promotions to lure customers and improved the carrier’s network.

“When you put all those things together, we have reached an inflection point,” Claure said in an interview.

Claure has also cut operating costs, helping boost earnings before interest, taxes, depreciation and amortization to $2.08 billion in the fiscal first quarter. That topped the $1.8 billion average of estimates compiled by Bloomberg.

Investors rewarded Sprint for the results, sending the shares up 4.5 percent to $3.49 at the close in New York. The stock has declined 16 percent this year while T-Mobile jumped 53 percent.

Sprint, based in Overland Park, Kansas, added 675,000 subscribers last quarter, and managed to reduce losses in the more lucrative postpaid segment for the fifth consecutive quarter -- a decline of 12,000. For the first time in almost two years, Sprint recorded monthly postpaid phone net additions in May and June.

Even with the gains, Sprint’s 57.7 million total users fell short of T-Mobile’s 58.9 million.

Balance Sheet

Also, the turnaround has taken a toll on Sprint’s balance sheet. The company’s cash and equivalents fell about $2 billion during the fiscal first quarter, which was 2.5 times the decrease in the period a year earlier and compares with a $555 million increase in the fiscal fourth quarter.

Sprint is creating a leasing company for its handset business, which will allow the carrier to buy phones upfront, and customers to pay for the devices in increments over time. This kind of arrangement will require money upfront for Sprint to purchase devices, and SoftBank has agreed to be a minority investor to help fund the arrangement. It’s a plan that took about six months to arrange, Claure said.

SoftBank Chairman Masayoshi Son, who’s also chairman of Sprint, said Tuesday on a conference call that he’s now confident in Sprint’s plans and has no intention to sell his stake.

“It was hard to get Masa to turn around in his thinking,” Claure said. “Six months ago he had lost faith in the company and was ready to sell it.”

Cash Burn

With the funding help from SoftBank, Sprint doesn’t expect to need to raise additional capital through public debt or equity markets, nor does it plan to sell spectrum.

Cash burn rate has soared to a “stomach-churning” level, Craig Moffett, an analyst at MoffettNathanson LLC, said in a note to investors.

“Off balance sheet debt through new funding vehicles is still, well, debt,” said Moffett, who recommends selling the shares.

Sprint’s sales fell 3 percent to $8.03 billion last quarter from the previous period. Analysts predicted $8.33 billion. The company posted a net loss of $20 million, compared with net income of $23 million a year earlier.

Last week, T-Mobile posted profit and sales that exceeded analysts’ estimates and raised its forecast for subscriber growth.

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