Tuesday, Oct. 19, 2004 | 9:13 a.m.
Sprint Corp., the No. 3 U.S. long-distance carrier, posted a third-quarter loss after writing down the value of its telephone network. Wireless revenue rose 13 percent.
The net loss widened to $1.91 billion, or $1.32 a share, from $497 million, or 35 cents, a year earlier, the Overland Park, Kan.-based company said in a statement. Sales rose 3.1 percent to $6.92 billion.
Sprint, the dominant local telephone service provider in the Las Vegas area, has 1,500 local employees and 872,618 local residential and business access lines. The company does not provide the number of local wireless or DSL Internet service customers.
Falling prices for long-distance calling and increased competition prompted Chief Executive Gary Forsee to write down the value of Sprint's landline network by $3.5 billion. Forsee is relying on wireless to compensate for falling long-distance revenue as calling shifts to cell phones and the Internet. Wireless sales rose to $3.76 billion from $3.34 billion.
"The company is doing a good job of cutting costs in the long-distance unit, which is helping offset ongoing revenue pressure," said William Power, a Robert W. Baird & Co. analyst in Dallas who has an "outperform" rating on Sprint and said he doesn't own the shares.
Shares of Sprint fell 55 cents, or 2.7 percent, to $20.05 at 9:51 a.m. in early trading today on the New York Stock Exchange.
The company boosted its full-year revenue forecast to a rise of 4 percent to 5 percent, from an earlier estimate of 3 percent to 4 percent. Operating income plus depreciation and one-time costs will be at the high end of the company's forecast of $8.1 billion to $8.2 billion.
Sprint's profit excluding the write-down and job cut expenses was 24 cents a share, beating the 21-cent average estimate of 23 analysts surveyed by Thomson Financial. Sales were expected to be $6.91 billion.
The shift from local- and long-distance calling to wireless will continue, Sprint said. Long distance revenue will fall at a rate in the "high single digits" this year and local-call sales will drop in the "low single digits." Wireless revenue will rise at a "double-digit" rate, the company said in the statement.
Wireless sales rose to 54 percent of revenue from 17 percent five years ago. Wireless will probably reach almost two-thirds of sales in 2008, Morgan Stanley analyst Simon Flannery estimates.
Sprint added 429,000 wireless subscribers, bringing its total to 17.3 million. Affiliates and companies that resell its service, such as Virgin Group Ltd., added 523,000 subscribers, bringing that total to 5.9 million.
Churn, a measure of wireless subscribers who switch to another service, was 2.7 percent during the quarter, unchanged from last year, the company said.
Long-distance revenue has fallen for 15 consecutive quarters. It slipped 8.5 percent during the quarter to $1.81 billion.
Selling, general and administrative costs in the long distance unit fell to $421 million from $526 million in the prior year. The long-distance write-down will cut Sprint's depreciation costs by $190 million a quarter, starting in the fourth period, Chief Financial Officer Bob Dellinger said on a conference call with analysts.
AT&T Corp. partly blamed erosion in its long-distance business when it said earlier this month that it will have an expense of $11.4 billion to write down the value of its network. MCI Inc. said yesterday that it would write down the value of its network by $3.5 billion.
Forsee, 54, wants to cut $1 billion from annual costs by 2006. The company said last week it will cut 700 additional jobs. It will have slashed 7,500 positions, or 11 percent of its workforce, by the end of the year through firings, attrition and outsourcing.
Sprint, AT&T and other traditional long-distance carriers have been losing callers to wireless and regional phone companies, such as SBC Communications Inc., which entered the business after it was deregulated in 1996.
Sales from the Sprint's local-calling division fell 2 percent to $1.5 billion. Local calling accounted for 22 percent of revenue in the third quarter. Sprint is expected to lose more than a third of its 5.6 million local lines in the next decade, said Michael Fuller, who runs the operation.
To make up for the falling local and long-distance sales, Foresee is focusing on selling bundles of services to customers. Foresee said last week that Sprint will no longer promote stand-alone long-distance calling to businesses. Instead, he'll sell packages that also include wireless and high-speed Internet.
"This continues to be the most challenging pricing environment we've seen in years," said Howard Janzen, who heads Sprint's unit that serves business customers, said on a conference call.
Sprint trails AT&T and MCI in the long-distance market and lags behind Verizon Wireless, Cingular Wireless LLC and AT&T Wireless Services Inc. in cell-phone subscribers.
Write-downs are non-cash charges that companies are required to make under U.S. accounting rules when the value of an asset has declined. Falling call prices have devalued phone networks at the major carriers.
With the reduced depreciation expense, the company expects 2004 earnings, excluding some costs, of 92 cents to 94 cents a share. Twenty-five analysts surveyed by Thomson Financial had expected 79 cents a share.
Sprint continued to cut debt in the quarter, to $13.4 billion. The company expects to slash its debt, after subtracting cash, to less than $13 billion by January, from $19 billion in 2002.
Standard & Poor's said Oct. 8 it may raise Sprint's credit rating because of improving results and debt reduction.
In last year's third quarter, Sprint had $1.2 billion in costs to write down the value of its wireless-network radio spectrum. Sales in the year-earlier period were $6.71 billion.
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