Sprint shares shoot up 11% on solid earnings

Marcelo Claure
Sprint CEO Marcelo Claure

Shares of Sprint jumped nearly 11% this morning after the carrier posted its first quarterly profit in three years and added 88,000 net postpaid subscribers. But the carrier shed very little light on prospects for a potential tie-up with another major player.

Verizon, AT&T and T-Mobile all posted generally strong quarters last week, and some investors feared those gains may have come at the expense of the nation’s smallest wireless carrier, which was the last to report. But Sprint’s results were largely in line, with most financials beating analysts’ expectations while subscriber growth fell a bit shy of consensus estimates.

While its figures may not have been spectacular, they clearly helped to calm investors’ nerves—a feat the carrier failed to achieve in its prior quarter.

Net income came in at $206 million, marking a significant improvement over the $302 million net loss it posted during the same period a year ago. CEO Marcelo Claure credited the company’s ongoing cost-cutting initiatives, which have seen Sprint slash spending by nearly $4 billion over the last nine quarters.

“Sprint reached an important milestone this quarter by returning to profitability for the first time in three  years,” Claure said in the earnings release. “This represents the progress of a turnaround journey that has delivered improvements in postpaid phone and prepaid customer growth, a return to top-line growth and a significantly transformed cost structure.”

Here’s a closer look at some other key metrics from Sprint’s quarterly earnings report.

Subscribers: Sprint enjoyed its eighth consecutive quarter of postpaid phone net additions, and its total net additions of 61,000 included postpaid net losses of 39,000, prepaid net additions of 35,000, and wholesale and affiliate net adds of 65,000. Postpaid phone churn came in at 1.5%, and total postpaid churn was 1.65%. Verizon’s launch of an unlimited data plan hurt Sprint’s subscriber numbers during the quarter, Claure conceded, but Sprint added 115,000 new customers in July as the market calmed. “Every time a new carrier launches a new promotion or changes the way they do business… that automatically causes the market to shift,” he said. “Now things are back to normal…. The market has gone back to what we’re used to in the last couple of years.”

Financials: Total revenue of $8.16 billion edged past the $8.13 billion predicted by Wells Fargo Securities analysts, and while wireless service revenue was down 6.2% year over year to $5.72 billion, it beat Wells Fargo’s estimate of $5.7 billion. Net income of 5 cents per share significantly beat average estimates of a net loss of 1 cent per share, according to Thomson Reuters I/B/E/S.

Potential M&A: Claure was understandably coy about which company—or companies—Sprint might be most likely to partner with, saying multiple times that the carrier has “plenty of options.” He also maintained Sprint can be sustainable as a standalone company, but he made it clear the carrier is eagerly pursuing a tie-up with a variety of players. And while Charter recently said it “has no interest in acquiring Sprint,” Claure said that offer was never on the table—perhaps leaving the door open for some other kind of arrangement with the cable operator.

Summary: Sprint’s modest postpaid phone gains and its impressive financial turnaround notwithstanding, the nation’s No. 4 carrier still faces huge challenges as the industry prepares to enter the 5G era. Sprint owes billions in debt that will come due over the next several years, which will severely limit its ability to leverage its valuable pile of 2.5 GHz spectrum. But striking a deal with a deep-pocketed partner has become much more difficult over the last two years as Sprint has seen its stock rise.

“We observed last quarter that we’ve never in our careers encountered a company whose financial reports, on an as-reported basis, make it as difficult to discern underlying trends (although, to be fair, the entire wireless sector is problematic on this score),” Craig Moffett of MoffettNathanson wrote in a note to investors. “Unfortunately, it is precisely these distortions that make M&A so difficult. Our skepticism about Sprint’s deal-making has nothing to do with Sprint’s intrinsic attractiveness; its subscriber base is inherently appealing to anyone wanting scale, and its spectrum trove of 2.5 GHz spectrum really does have incremental value. The problem is simply Sprint’s excessive valuation.”