SoftBank founder Masayoshi Son credited Sprint's (NYSE: S) dramatic budget cuts as helping raise SoftBank's operating profit by 8.8 percent in its recently completed fiscal year. But doubts about the U.S. carrier's ability to weather a brutal financial storm linger.
SoftBank's operating profit actually missed analysts' expectations for the year, and Sprint incurred negative $5.65 billion in free cash flow during fiscal 2016, Barron's Asia noted. And SoftBank declined to offer guidance for the current business year, citing multiple uncertain factors.
But SoftBank's Son continued to voice support for the U.S. mobile network operator his company bought in 2013. "Cost-cutting is going smoothly at Sprint," said Son during a conference call with analysts, according to The Wall Street Journal. "We'll see a V-shaped recovery."
While that kind of recovery is far from certain, Sprint has clearly made huge strides in trimming the financial fat. The operator slashed 2,500 jobs in a third round of layoffs in January, and its capex for the rest of the year is likely to be roughly two-thirds of what analysts had previously expected. Company executives have said repeatedly they hope to cut as much as $2.5 billion from Sprint's overall bottom line.
Meanwhile, Sprint has secured $11 billion in "total committed liquidity," as Wells Fargo Securities analysts noted last week, primarily from SoftBank's creation of financing vehicles involving Sprint's network assets and leased handsets. And Sprint recently announced a $2 billion bridge financing arrangement with Mizuho Bank.
Sprint owes $10 billion that will come due by the end of 2020 and must make $2.3 billion in debt payments this year. Exacerbating matters is a flagging junk bond market that will likely make it more difficult for the carrier to refinance its debt in the coming months.
Shares of SoftBank dropped 18 percent over a four-day slide in January due to concerns Sprint may not be able to meet its financial obligations. Son said in February that Sprint is "showing definitive signs of a turnaround," and indeed the carrier has enjoyed solid subscriber gains during the last two quarters.
Those gains have been costly, though, stemming largely from aggressive promotions like the carrier's "half-off" offer for customers who switch from other carriers. Sprint must find ways to continue to lure new users without damaging its bottom line even as it makes ends meet with its creditors. Meanwhile, questions remain about whether it can truly maintain its network to keep pace with its larger rivals, particularly as it cuts spending on its network this year.
- see this Wall Street Journal report
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