Sprint results rise; sales increase 5.8%

Dana Cimilluca

Tuesday, April 20, 2004 | 11:13 a.m.

Sprint Corp., the No. 3 U.S. long-distance phone company, said first-quarter profit from continuing operations more than doubled as sales increased 5.8 percent, driven by PCS wireless revenue.

Consolidated profit from continuing operations rose to $222 million, or 15 cents a share, from $97 million, or 7 cents, in the year-earlier quarter. Sales rose to $6.71 billion from $6.34 billion, Overland Park, Kan.-based Sprint said today in a statement.

Sprint has 1,700 Las Vegas-area employees and operates about 900,000 local access lines. The company does not disclose the number of local PCS customers.

The company raised its 2004 sales-growth forecast to 3 percent to 4 percent from 2 percent to 3 percent. Chief Executive Gary Forsee is taking advantage of wireless revenue, which soared 17 percent, by combining shares that track Sprint's mobile-phone unit with the long-distance stock. The new share structure has also made Sprint subject to takeover speculation, analysts say.

"The wireless business is moving along quite nicely," said Michael Bowen, a Schwab SoundView Capital analyst who has "neutral" ratings on both Sprint stocks. "Wireless is going to continue to show signs of strength, and that's going to help the overall company."

Stock of Sprint's PCS wireless unit is the third-best performer in the S&P 500 index this year. It had increased 69 percent amid industry consolidation and accelerating sales. The shares will be combined Friday with stock of Sprint's FON long- distance unit, which includes a local-calling operation. The parent-company shares had risen 16 percent this year.

Assuming the share combination took place at the beginning of last year, Sprint said consolidated profit from continuing operations was 17 cents a share excluding certain costs, compared with 10 cents before items a year earlier. Analysts surveyed by Thomson Financial expected profit of 15 cents on that basis and sales of $6.53 billion.

Forsee, 54, announced the stock recombination Feb. 29 to simplify Sprint's structure for investors, and to underline consolidated growth in a single stock. Each PCS share will be converted into half a share of FON stock. The wireless stock rose 45 cents to $9.95 at 9:46 a.m. in New York Stock Exchange trading; the main phone unit's shares rose 99 cents to $19.97.

Sprint, whose first-quarter net income was the same as its $222 million in profit from continuing operations, had net income of $1.67 billion a year earlier. That included a $1.31 billion gain from the sale of the company's phone-book unit and a $258 million gain related to retired assets. The company didn't provide consolidated per-share net income figures.

The main phone unit's net income fell to $308 million, or 34 cents a share, from $1.85 billion, or $2.06, which included the year-ago gain from discontinued operations. Sales fell 3.9 percent to $3.44 billion, the 13th straight decline.

Excluding gains and certain costs, FON profit rose to 36 cents from 34 cents, Sprint said.

Sprint's wireless-calling unit, the fourth-largest in the U.S., said its first-quarter net loss narrowed to $86 million, or 9 cents a share, from $182 million, or 18 cents, a year earlier. Sales jumped to $3.44 billion from $2.95 billion.

Excluding certain costs, the PCS unit's loss narrowed to 8 cents from 16 cents, the company said.

The PCS unit added 414,000 customers in the quarter, excluding wholesale and affiliates, for a total of 16.3 million. That compares with 199,000 additions in the year-earlier quarter.

Churn, or the monthly customer defection rate at the wireless operation, fell to 2.9 percent in the first quarter from 3.1 percent a year earlier, Sprint said. It will be in the "mid-2 percent range" this quarter, President Len Lauer predicted on a conference call with analysts.

The company counts on PCS to fuel growth, with long-distance sales down in the last three years. The U.S. long-distance industry has been buffeted by a decline in prices as new competitors chase corporate customers who are spending less, and as consumers turn to e-mail and wireless phones. Local-phone carriers have signed up more than 35 million long-distance customers since the market was opened to competition in 1996.

The elimination of the dual-share structure would make any acquisition of Sprint easier to complete, analysts including Thomas Friedberg of Janco Partners Inc. have said. Possible Sprint buyers include No. 1 U.S. local-phone company Verizon Communications Inc., Loomis Sayles & Co. analyst Paul Wright has said. Verizon has declined to comment on the speculation.

Talk that Sprint might be bought by another phone company grew following Cingular Wireless LLC's Feb. 17 agreement to acquire rival AT&T Wireless Services Inc.

The transaction values AT&T Wireless, the No. 3 mobile-phone provider, at $41 billion, more than 50 percent above where it traded in late 2003, when the companies' talks surfaced. That valuation has contributed to the rise in Sprint PCS shares.

Forsee, who took the helm at Sprint in March 2003, is organizing Sprint into two groups based on customers -- one corporate and the other consumer -- instead of organizing around products in a bid to save $1 billion annually by 2006.