Sprint Nextel profit drops on costs By DAVID TWIDDY, AP Business Writer

Sprint Nextel profit drops on costs By DAVID TWIDDY, AP Business Writer
54 minutes ago



KANSAS CITY, Mo. - Wireless provider Sprint Nextel Corp. on Wednesday said second-quarter profits dropped sharply, but it still beat Wall Street estimates and had positive news on subscriber growth for the first time in almost a year.

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The Reston, Va.-based company, with operational headquarters in Overland Park, Kan., said it earned $19 million, or 1 cent per share, during the three months ending June 30, compared with $370 million, or 10 cents per share, during the same period a year ago.

Not counting one-time amortization, the company said it earned 25 cents per share, beating the 22 cents per share prediction of analysts surveyed by Thomson Financial.

Revenue during the quarter rose about 2 percent from $10 billion to $10.16 billion, missing Wall Street's estimate of $10.2 billion.

Analysts, many of whom had low expectations for the quarter, expressed cautious optimism following the company's earnings, although some were still concerned that Sprint Nextel could be vulnerable to competition.

Sprint Nextel shares fell 45 cents, or 2.2 percent, to $19.77 Wednesday.

"We believe the quarter represents a good baseline for Sprint Nextel on which to build, but we view much of the low-hanging margin improvement fruit as being achieved in the most recent quarter, and we continue to question how much growth the U.S. wireless industry as a whole has left," said Stifel Nicolaus analyst Christopher King in a research note.

The company, which has struggled to keep up with rivals AT&T and Verizon Wireless, said it added 373,000 subscribers during the quarter, including 16,000 postpaid customers, subscribers who pay a variable bill at the end of the month and are considered the most valuable. It was the first positive numbers in the category in almost a year.

Wholesale channels contributed 155,000 new subscribers, while affiliates generated 33,000 new subscribers.

During the same quarter, AT&T added 1.5 million customers while Verizon Wireless added 1.6 million customers, but lost 300,000 through the bankruptcy of Amp'd Mobile.

Much of Sprint Nextel's improvement came as the company said it did a better job of holding onto customers. It said its churn, the number of new and department customers, decreased to a little more than 2 percent, compared with 2.1 percent a year ago and 2.3 percent in the first quarter.

The company continued to lose customers on its Nextel-branded service, which has been plagued by signal problems and other issues since Sprint acquired the company in August 2005.

"We reported a double-digit gain in subscriber acquisitions in our business channels," Gary Forsee, the company's chairman and chief executive, said in a release. "We met our goal of reducing churn to 2 percent, and network performance continued to improve."

Chief Financial Officer Paul Saleh warned during a conference call with analysts that Sprint Nextel would likely see a loss of customers in the third quarter as more of them are jettisoned for not paying their bills and for other reasons.

The company said it spent $51 million developing its WiMax network, a mobile broadband network that provides Internet speeds comparable to DSL and cable modems. It is similar to the Wi-Fi technology used in airports and coffee shops, but WiMax can provide coverage to entire cities.

Overall expenses during the quarter rose 8 percent to $8.5 billion, including higher network maintenance and marketing costs. Costs from the buyout increased 44 percent, from $113 million a year ago, to $163 million.

Wireless revenues rose 3.5 percent from $8.5 billion to $8.8 billion while revenue from more traditional wireline business remained level at $1.6 billion.

The company reiterated its guidance of between $41 billion and $42 billion in revenue and operating income before taxes and depreciation of between $11 billion and $11.5 billion. Analysts are expecting revenue of $41 billion and earnings of 87 cents per share.