Sprint Cuts Capital Spending 36% Amid Mobile Network Overhaulby
Carrier `smarter' about investments in network: CEO Claure
Capex reduction helps Sprint guide to cash-flow break-even
Sprint Corp. is reducing capital spending by 36 percent this year, betting it can conserve cash and still improve its wireless network and add customers in an increasingly competitive market.
Sprint, mired in debt and losses, plans to cut spending to $3 billion from $4.7 billion in fiscal 2015. While Chief Executive Officer Marcelo Claure maintains the mobile network is state-of-the-art enough to lure customers from Verizon Communications Inc., AT&T Inc. and T-Mobile US Inc., some analysts interpreted the move as a spending squeeze that could leave the carrier further behind its rivals. Sprint, now the No. 4 carrier, faces the challenge of cutting $2 billion in annual costs, while raising cash and attracting new subscribers to a faster network.
“The punch line here is that we are building our network, we are not delaying any spending and, more importantly, we are building our network way smarter than we did in the past,” Claure said during a conference call with reporters.
In a break from convention, Sprint is seeking alternatives to 20-year agreements with tower companies, and has opted in some areas to put small antennas and transceivers on building rooftops and utility poles to improve signal reception. While it’s a cheaper option, it can take longer because of local permitting processes.
“This is largely a deferral of capital spending from 2016 to 2017, again, a move towards sustainability rather than growth,” Craig Moffett, an analyst at MoffettNathanson LLC, said in a note Tuesday. Moffett, who has a sell rating on the stock, described Sprint as “spectrum-rich but network poor.” The carrier’s plan to make the most use out of a vast trove of 2.5 gigahertz spectrum is “taking longer than expected and will mostly come in 2017 rather than 2016,” he wrote.
Delays in obtaining permits have placed the onus on cost cuts to improve profit until Sprint’s network upgrade plan is back on schedule, John Butler, senior industry analyst for Bloomberg Intelligence, wrote in a research note. The reduction in capital spending helped the company forecast that it would break even on adjusted free cash flow in fiscal 2016.
Shares rose 2.6 percent to $3.58 at 11:59 a.m. in New York. The stock had fallen 3.6 percent through Monday.
Subscriber Gains Disappoint
Overall, cost cuts helped make up for a lower amount of subscriber additions than estimated.
Adjusted earnings before interest, depreciation and amortization for the fiscal fourth quarter, which ended March 31, was $2.16 billion, compared with a $2.02 billion average of estimates compiled by Bloomberg. The company cut $1.3 billion in expenses in the fiscal year.
Sprint added 56,000 monthly subscribers, compared with the 197,000 average of six analysts surveyed by Bloomberg. Cash and equivalents increased by 18 percent from the previous quarter to $2.6 billion.
To raise cash, Sprint has been converting its phone inventory into a financing mechanism through a sale-and-lease arrangement led by SoftBank Group Corp., which controls about 83 percent of Sprint. The carrier is also using its network infrastructure as collateral for financing -- an alternative to higher rates in the high-yield bond market. Last week the carrier received $2 billion in bridge financing from Mizuho Bank Ltd.
- Sales were $8.1 billion, compared with analysts’ estimate of $8 billion.
- A net loss of 14 cents a share compared with the 13-cent average of estimates compiled by Bloomberg.
- Average revenue per user was $51.68, compared with $51.48 analysts predicted.
- Adjusted Ebitda for fiscal 2016 will be $9.5 billion to $10 billion, Overland Park, Kansas-based Sprint said in a statement Tuesday.
- Operating income for 2016 will be $1 billion to $1.5 billion.
- Excluding phone-leasing costs, Sprint forecast about $3 billion in full-year capital spending.
- Adjusted free cash flow will be about “break-even,” the company said in a statement.