Sprint’s progress turns around stock’s slide

Sprint Corp. wowed worried investors Tuesday by reporting gains in its most valuable customer count and progress on key elements of its complex turnaround plan.

Shares of the Overland Park-based wireless carrier jumped 18.7 percent after the report. The bump recovered more than half the losses that investors had suffered in the previous two weeks.

“We’re on a good trajectory,” chief executive Marcelo Claure told reporters after Sprint released its quarterly update. “Sprint has improved on every metric.”

Claure hailed the results as defying one analyst’s claim that no carrier had ever been able to “grow subscribers, improve the network and take out costs at the same time.”

Sprint said it added 366,000 of the most valuable cellphone subscribers in the final months of 2015. It also boasted of improved network ratings and squelched an unconfirmed report of a radical change in its network strategy.

Although Sprint lost $836 million in the recent quarter, it also found nearly $800 million in spending cuts on its way to cutting $2.5 billion from future budgets.

Analyst Craig Moffett, who has been skeptical of Sprint’s success in reports to clients, acknowledged the results were “undeniably improving” and cited its “genuine progress in reducing costs.”

Sprint shares ended the day at $2.99, up 47 cents.

Profitable customers

The 366,000 additional phone subscribers boost Sprint’s turnaround story because they are among the most profitable for wireless carriers.

Claure shrugged off the 491,000 decline in Sprint’s prepaid, or month-to-month, customer count. The drop reflected intense competition in that market and Sprint’s unwillingness to fight for them because they’re less profitable.

A wireless subscriber, generally tethered to the company by a phone lease or purchase contract, generates 10 times the profit as one that prepays for service from month to month, Claure said.

Sprint previously relied heavily on these less profitable prepaid customers to offset declines in its base of high-revenue subscribers.

Earlier losses of those more profitable customers led to a 10 percent decline in revenue for the quarter to $8.1 billion.

Sprint finished 2015 with 58.359 million subscribers, fourth among national carriers.

Its total was down from the end of September largely because it excludes 710,000 connections on the WiMax network Sprint has worked to shut down. Sprint said it deactivated the customers’ accounts.

Network confusion

Tuesday’s report came a week earlier than originally planned as Claure sought to head off the company’s sharp drop in financial markets. The cause, he said, had been an erroneous report by the website Re/code of radical changes to Sprint’s network plans.

“The article that was published last week, the information was incorrect,” Claure said. “It caused a lot of damage and a lot of confusion.”

He reiterated plans to add towers and smaller cell sites to make Sprint’s network more dense, especially in high traffic areas and where the company has to piggyback on other major carriers’ networks.

Sprint also said it is weighing every option at each site where it needs to bolster its network. The article triggered some negative reports as well as an explanation of Sprint’s small cell plans by an unofficial Sprint network technology group.

Claure and chief technology officer John Saw said they did not want to disclose much about their network plan details. They don’t want to alert competitors.

Improvements in the network’s performance already is helping Sprint hang on to the customers it already has. Churn, which is the rate at which Sprint loses those customers, remained at record low levels in the quarter.

Cash and costs

Chief financial officer Tarek Robbiati opened the book more on how Sprint will pay for its turnaround plans.

The company is relying partly on generating more revenue as customer counts grow. Cutting $2.5 billion in expenses will allow that much more of the cash coming in to pay for network improvements, repayment of debts and other uses.

Robbiati said fresh cash would come from a repeat of an earlier deal in which Sprint sold cellphones it leases to its customers. That deal raised $1.1 billion in cash last month. He said similar deals would raise between $3 billion and $4 billion in cash during the company’s next fiscal year, which begins April 1.

The report covers the final three months of 2015, but it represents the third quarter of Sprint’s fiscal year that will end March 31.

Sprint’s cash talk, showing its finances were increasingly liquid, was just what markets needed, according to analyst Jennifer Fritzsche at Wells Fargo Securities.

“While all of this is positive,” she wrote in a note to clients, “we think the bigger story is the hand-holding Sprint is doing on the liquidity side.”

Sprint expects to raise an additional $3 billion to $5 billion in cash from a network equipment leasing deal that Robbiati said is still being put together.

The company’s $836 million loss equaled 21 cents a share. A year earlier, it reported losing $2.4 billion, or 60 cents a share, during those months, mostly because of a $2.1 billion impairment in the value of some of its assets.

Sprint’s recent loss included $209 million in severance and other costs triggered by the elimination of 2,500 jobs in the company’s cost cutting effort.

This story was originally published January 26, 2016 at 7:23 AM with the headline "Sprint’s progress turns around stock’s slide."