Stock market cheers Sprint report

Sprint Nextel chief executive Dan Hesse crowed Thursday about his company’s spring showing, and the stock market eagerly joined the chorus.

Shares of the Overland Park-based wireless carrier jumped 20 percent, or 68 cents, to close at $4.05. Sprint’s second quarter results — highlighted by better-than-expected revenue — caught analysts pleasantly by surprise.

It was the company’s best one-day showing in the stock market in more than two years.

“There is really nothing to poke a hole at in this quarter,” Hesse said.

Traders found plenty of reasons to look past news that Sprint also posted its biggest quarterly loss since 2008 and its slowest customer growth in more than a year.

Sprint’s revenues totaled $8.8 billion during April, May and June, topping analysts’ expectations. Sales of iPhones, particularly the 40 percent that went to new customers, held their pace at Sprint while other carriers saw a slowdown.

Sprint said it already has turned off the one-third of its Nextel network cell towers it no longer needs. Those big cost savings are well ahead of schedule.

Moreover, a whopping 60 percent of the customers jumping off the Nextel network — set for shutdown next year — landed on the company’s vibrant Sprint network in the second quarter. In the past, most of the Nextel exodus had gone to rival Verizon Wireless.

“Give credit where credit is due,” wrote analyst Jennifer Fritzsche at Wells Fargo Securities. Sprint’s results “more than any in recent history illustrate that the fruits of Sprint’s labor are finally being seen.”

Sprint has said that offering the popular iPhone and upgrading its network, which includes ending Nextel, are keys to its turnaround strategy.

As investors bid up Sprint’s stock, the market readily absorbed the other news.

Sprint added only 283,000 new subscribers in the quarter, breaking a string of six quarters in which the No. 3 carrier had grown by more than 1 million new customers. The sting was easier to take given that relatively few wireless customers were looking for a new carrier last quarter.

Sprint’s net loss hit $1.4 billion during the three months. A year ago, losses totaled $847 million.

Much of the latest quarterly loss, however, grew out of Sprint’s ability to shut down the unneeded Nextel towers faster than expected.

The cost savings help Sprint’s financial results. For example, each tower consumes about as much electricity as four homes and Sprint has unplugged 9,600 of them.

But shutting down the towers required the company to write off the money it had invested in those cell sites.

Hesse called the cell tower write offs “irrelevant” because they didn’t drain company cash and were going to come sooner or later. Sooner means the cost savings come quicker.

They also, however, boosted Sprint’s reported net loss to an unexpectedly high 46 cents a share, compared with 28 cents a share a year ago.

“It looks like you missed your EPS (earnings per share),” Hesse said. “But to analysts it’s like, ‘Touchdown!’ ”

Sprint has said that operating the Nextel network, on top of its Sprint network, has been a major cost disadvantage compared with other wireless companies.

Although investors want the companies they own to post a profit, Sprint stockholders know their company is a long way from that day.

Hesse said last year that the company’s turnaround has hit its investment phase. The costs of upgrading its network and paying subsidies on iPhones would weigh on Sprint’s financial reports for perhaps two years before making them stronger.

In the meantime, investor attention is focused on an interim yardstick. It looks at operating earnings and ignores costs like interest payments on debt and still others that don’t involve cash payments but cut into the bottom line.

On this front, Sprint’s report beat analysts’ consensus by more than $400 million, Hesse said. The company also raised its own estimate for this non-traditional earnings yardstick to between $4.5 billion and $4.6 billion for all of 2012. It had been between $3.7 billion and $3.9 billion.

Fritzsche’s note said she expected an increase in the company estimate but not of that size.

Sprint also held down its defection rate among customers under contract, called churn, better than analysts expected. And its average revenues from customers under contract on the Sprint network hit a record $63.38.

The company said its $4 billion to $5 billion network upgrade, called Network Vision, is on schedule. The changes also are improving service measurably where work has been completed, the company said.

During a session with analysts, Hesse said Sprint has no plans to adopt the shared data pricing plans that Verizon and AT&T have announced. These charge a customer for each phone, tablet and other device that gets mobile service and adds a separate charge for a pool of data usage the devices share.

Sprint’s plans charge customers separately for each device and gives each device unlimited data, which it has emphasized in its advertising.

Hesse said it is too early to tell what impact the new pricing plans will have on the industry.

“I’m not saying we wouldn’t change our rate structure or our price levels, but right now we have no plans to do so,” Hesse said.

One analyst asked about Sprint’s tablet strategy and line up, which currently excludes the popular Apple iPad.

“Stay tuned. I can’t comment on that yet,” Hesse told analysts.

Future earnings reports may struggle to match the boost that Thursday’s report gave Sprint.

For starters, Apple is expected to launch a new version of the iPhone before the end of the year. In the past, the new model has sparked heavy customer upgrades at other carriers that have offered the iPhone longer than Sprint. Each upgrade carries with it a heavy subsidy by the phone company and hurts earnings temporarily.

Hesse said Sprint can’t possibly retain 60 percent of the departing Nextel subscribers as it comes closer to shutting down that network. A 40 percent retention rate seems more likely the rest of this year, he told analysts, though that’s far better than the company had been doing.

In the last couple of years, Verizon had gotten about half of the Nextel customers that moved off that network. Sprint garnered only a fourth of them.

Sprint grabbed 60 percent in the second quarter partly with customer credits and incentives to coax Nextel customers over to its new Sprint Direct Connect, its new push-to-talk service. Those efforts could hurt the company’s average revenues per customer in the current quarter that ends Sept. 30.