Sprint Tops User Gains, Sales Estimates in Turnaround Push

  • Preliminary adjusted earnings in line with projections
  • Claure attracts customers with discounts, ad campaign

Sprint Corp. reported preliminary subscriber gains and revenue that surpassed analysts’ estimates, signs that Chief Executive Officer Marcelo Claure’s turnaround plan is gaining steam.

The wireless carrier added 344,000 monthly subscribers in the fiscal second quarter, according to a filing Tuesday, compared with the average projection of 246,000. Revenue of $8.25 billion beat the $7.98 billion average of estimates compiled by Bloomberg.

Claure is using discounts of as much as half off competitors’ plans to win big market share after Sprint fell into fourth place in the U.S. wireless market. The company’s aggressive marketing campaign, which features a former pitchman for rival Verizon Communications Inc. who has switched to Sprint, has resounded with customers looking for better bargains.

Claure has also scaled back on network spending and has put Sprint’s network equipment, phone inventory and airwaves up as collateral for loans. The new sources of cash avert a financial crisis, help lower the company’s interest expenses and give Claure more time to implement his turnaround plan.

After years of user defections, Sprint is gaining momentum on subscriber growth, Jennifer Fritzsche, an analyst with Wells Fargo Securities LLC wrote in a note Tuesday. “Sprint’s value message and improved network experience is beginning to resonate with customers,” she wrote.

With seven years of losses and $37 billion in debt, the company still faces considerable challenges, especially in a slow-growing wireless industry beset by price battles, which have been led by Sprint.

“The turnaround will be real when they can add subscribers without uneconomical pricing and stop underspending on their network,” said Kevin Roe at Roe Equity Research LLC. “Their inability to invest to keep up the network is a reflection of fear not confidence.”

  • Adjusted earnings before interest, tax, depreciation and amortization rose to $2.35 billion, in line with projections.
  • Sprint’s net loss narrowed to $142 million from $585 million a year earlier. Analysts predicted a net loss of $279 million.
  • Adjusted free cash flow of $707 million compared with negative $100 million a year earlier

The stock swung to a loss of as much as 4.1 percent to $6.64 in afternoon trading Tuesday after climbing as much as 3.5 percent to a two-year intraday high earlier. The shares have gained about 50 percent since the company reported fiscal first-quarter earnings in July. Sprint plans to release its full second-quarter results Oct. 25.

“Street expectations had been moving higher, which is likely reflected in recent share performance,” Jefferies LLC analyst Mike McCormack wrote in a note to clients Tuesday. He has an underperform rating on the stock.

Sprint beat analysts’ projections for adjusted free cash flow largely by cutting capital spending, McCormack noted. Network and other capital expenditures of $470 million fell far short of analysts’ $751 million average estimate, he said.

The Overland Park, Kansas-based company is preparing a bond offer that will mortgage a portion of its airwaves. The wireless carrier, which is controlled by SoftBank Group Corp., is hoping to raise $3.5 billion in cash through a sale-and-leaseback of its radio waves. Due to strong demand, the company is limiting its bond offer to one short-term loan instead of adding two longer term notes, as originally planned, according to a person familiar with the situation.

— With assistance by Claire Boston

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