Sprint (NYSE: S) is starting to slash costs as part of a broader effort to cut $2.5 billion in expenses. The carrier expects to provide more details on the looming layoffs associated with the cost-cutting as well as its network densification plans when it reports quarterly earnings tomorrow.
Sprint CFO Tarek Robbiati said last month the carrier plans to cut about 10 percent of operating costs to save $2 billion and thinks the company can slash another $500 million in costs related to equipment spending. Now, some of those cuts are coming into view.
According to a recent email Sprint CEO Marcelo Claure sent to company employees that was viewed by The Wall Street Journal, Sprint will no longer provide free water bottles and yogurt to staff at the company's Overland Park, Kan., headquarters, something Claure started doing after he took the helm in August 2014. The program was on pace to cost the company about $600,000 per year, the report said.
Sprint's wireless business had about $26 billion in costs in the fiscal year ended March 31. Claure said as part of the cost cuts, executives will no longer be able to hire a driver with a limousine for business trips and will instead need to take an Uber or regular taxi. Sprint also won't be giving any raises to staff this year, and out-of-pocket health-care expenses will increase for many employees, according to the WSJ.
"It's going to be hard," Robbiati said in an interview with the Journal. "But we have to rip the Band-Aid pretty fast."
Sprint also plans to cut jobs but has not said how many or when. As of March 31, Sprint had 31,000 employees.
Sprint has typically offered two weeks' pay for one full year worked at the company. The company confirmed last week that it will offer one week of pay for a year worked at the carrier. However, the cut in severance pay will happen only if the employees are notified after Jan. 30, 2016. The package will take effect when employees are notified of their last day of employment. That means layoffs could cost Sprint less money if employees are notified after Jan. 30 of next year.
"We are leaving no stone unturned and looking at all areas," Sprint spokesman Dave Tovar told Reuters. He declined say how many employees might be laid off, saying it was too early in the budgeting process, according to Reuters.
Robbiati said the company's capital expenditures-to-sales ratio is more than 20 percent of revenue, which is several percentage points higher than its rivals. "This is where I see the opportunity," he said. Robbiati said cuts will be made across the business, but declined to say where the cuts would fall the hardest. Tovar said Sprint is "trying to get more in line with the industry average," on the capex-to-revenue ratio.
According to analysts polled by Thomson Reuters, Sprint is expected to report $8.1 billion in revenue for its fiscal second quarter, down around 4 percent from the year-ago period and a loss of about 8 cents a share. Sprint is expected to report subscriber gains, particularly in lucrative postpaid handset customers.
Claure said in mid-September that Sprint's finances will benefit from the leasing companies it is setting up with parent SoftBank and other companies to finance the leasing of handsets and network gear.
Sprint is finalizing the structure of the handset leasing vehicle now, and once it's running the firm will lease devices to Sprint at the same price that it is offering the devices to customers. In other words, if Sprint pays Apple $600 or $700 for an iPhone, the leasing company will then give that same amount of money to Sprint and finance the residual value of the device. Claure has said Sprint will unveil the leasing vehicle for network gear shortly after the one for handsets is announced.
Analysts will be looking for more details on the leasing vehicles as well as Sprint's plans to densify its network through the deployment of thousands of new macro cell sites and tens of thousands of small cells -- and how those plans are progressing, as Sprint first disclosed the broad outlines of the program in August.
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