NEW YORK – Sprint Nextel has said that its revenue this year will be flat or slightly higher than in 2006 and that profit will remain under pressure because of lower margins, sending its shares down 8 percent.
Sprint Nextel, one of the largest U.S. mobile service providers, also said Monday that it would cut 5,000 jobs, or nearly 8 percent of its work force to reduce costs and further integrate Nextel, which it acquired in August 2005.
Sprint said it had added 742,000 net subscribers in the fourth quarter, ending 2006 with a customer base of 53.1 million. It lost 306,000 postpaid customers in the quarter, with its churn rate, or cancellation rate, at 2.3 percent.
“They are just not getting enough customers,” said Thomas Watts, an analyst for Cowen & Co. based in New York, who downgraded the shares to “neutral” last month and does not own them.
Michael Nelson, an analyst for Stanford Group, said that the fourth-quarter numbers were disappointing and that while management’s admission of its problems was positive, investors wanted to see results.
“Guidance was disappointing, and at this point, Sprint has become a ‘show me’ story,” he said.
Sprint shares, which have fallen about 17 percent in the past 12 months amid investor concerns over falling market share and network problems, tumbled to $18 in after-hours trading Monday from their New York Stock Exchange close of $19.64.
“In the near term, a lower margin revenue mix, investment of an additional $1.1 billion in our business operations and start-up costs associated with the build-out of our fourth generation WiMAX wireless network will pressure profitability,” the Sprint chairman and chief executive, Gary Forsee, said in a statement.
“We will continue to adjust our cost structure, which will include a work force reduction, as we meet the changing demands of the business,” Forsee added.
Sprint forecast consolidated operating revenue of around $41 billion to $42 billion for 2007.
That compared with Wall Street analysts’ average forecast of $41.8 billion.
The company also again put its 2006 consolidated operating revenue at about $41 billion and capital expenditure at $7 billion to $7.3 billion.
For 2007, the company forecast capital spending of around $8.5 billion, consisting of $7.1 billion for core wireless networks and spectrum rebanding efforts, adding that it aimed to add network coverage and capacity.
Sprint predicted 2007 operating profit, excluding depreciation and amortization, of $11 billion to $11.5 billion.
“That’s a huge miss,” Watts said. A turnaround will not occur this year, so the stock “could be dead money for a while,” he said.
Sprint suffered from network problems in 2006, and Forsee acknowledged that trouble with its iDEN network had hurt demand and increased churn.
The company said its full-time head- count reduction would be applied across the company, from a base of 64,600 at the end of 2006, with a majority of the cuts planned in the first quarter.
It forecast a total of around $700 million in merger integration and severance costs in 2007, with the bulk of those costs in the first half of the year.
Sprint also said it was on course to achieve $14.5 billion in net merger synergies.
Paul Saleh, the chief financial officer, said the cost efficiencies, as well as a stricter policy to attract more high- credit customers, would pay off and lead to stronger results in 2008.
Sprint said revenue growth in 2007 would be offset by lower average revenue per subscriber and lower wireline revenue.
The company said that it expected to continue with its share buyback program but that the amount and timing of its purchases would vary as the program proceeded.
Since the start of the program last August, the company has repurchased 98 million shares for about $1.6 billion.
Fuente: International Herald Tribune