Sprint (S) Q1 Loss Narrower Than Expected, Revenues Beat

Sprint Corp. S reported mixed financial results for the first quarter of fiscal 2016. Though loss widened year over year, it was still narrower than the Zacks Consensus Estimate. Revenues came in ahead of the consensus mark despite a slight year-on-year decline.

This Zacks Rank #3 (Hold) stock faces fierce competition in the U.S. wireless market from the likes of Verizon Communications Inc (NYSE:VZ). VZ, AT&T Inc (NYSE:T). T and T-Mobile US Inc. TMUS. In order to remain competitive, Sprint launched several low-priced data and voice plans.

Quarterly net loss was $302 million or 8 cents per share, much wider than a net loss of $20 million or 1 cent per share in the year-ago quarter. However, first-quarter adjusted net loss per share of 6 cents was narrower than the Zacks Consensus Estimate of a loss of 8 cents.

Quarterly total revenue came in at $8,012 million, down 0.2% year over year but ahead of the Zacks Consensus Estimate of $7,976 million. Service revenues were $6,516 million, down 7.4% while Equipment revenues totalled $1,496 million, up a substantial 51.1%.

Operating expenses were $7,651 million, up 1.7% year over year. Operating income was $361 million compared with $501 million in the year-ago quarter. Adjusted EBITDA improved 18% year over year to $2,457 million. Adjusted EBITDA margin was 37.7% compared with 29.6% in the year-ago quarter.

Cash Flow

In the first quarter of fiscal 2016, Sprint generated $542 million of cash from operations compared with $128 million in the prior-year quarter. Quarterly free cash flow was a negative $349 million compared with a negative $2,246 million in the prior-year quarter.

Liquidity

At the end of the first quarter of fiscal 2016, Sprint had $5,084 million of cash and marketable securities compared with $2,641 million at the end of fiscal 2015. Total debt outstanding, at the end of the reported quarter was $36,465 million compared with $33,958 million at the end of fiscal 2015. At first-quarter end, the debt-to-capitalization ratio was 0.65 versus 0.60 at the end of fiscal 2015.

Wireless Segment

Total segment revenue was $7,597 million, up 0.8% year over year. Postpaid revenues totalled $4,778 million, down 3.7%. Prepaid revenues were $1,165 million, down 10.4%. Wholesale revenues were $158 million, down 12.7%. Equipment revenues were $1,496 million, up 51.1% year over year.

Wireline Segment

Total segment revenue was $545 million, down 13.5% year over year. Voice revenues totalled $181 million, down 22.3%. Data revenues were $43 million, down 12.2%. Internet revenues were $302 million, down 7.9%. Other revenues were $19 million, down 5% year over year.

Subscribers Statistics

In the reported quarter, Sprint gained 180,000 postpaid subscribers and 528,000 wholesale customers but lost 331,000 prepaid customers. As of Jun 30, 2016, Sprint had 59.453 million wireless customers, up 4.6% year over year. This includes 30.945 million postpaid, 13,974 million prepaid and 14.534 million wholesale customers.

Quarterly total retail postpaid churn rate was 1.56%, flat year over year. Total retail prepaid churn rate was 5.55%, up from 5.08% in the prior-year quarter. Total retail postpaid ARPU (average revenue per user) was $51.54, down 7.1% year over year. Total retail pretpaid ARPU was $27.34, down 1.7% year over year.

Outlook

Sprint expects fiscal 2016 adjusted EBITDA of $9.5 billion to $10 billion and operating income of $1 billion to $1.5 billion. Capital expenditures will be approximately $3 billion. Adjusted free cash flow will be around break-even.