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Sprint sees sluggish first quarter

The telephone company meets expectations for the fourth quarter but says its first-quarter results will miss consensus estimates as long-distance revenue continues to drop.

    Sprint met expectations for the fourth quarter Thursday but said its first-quarter results would miss consensus estimates as its long-distance revenue continues to drop.

    Sprint
    Stock price from February 1999 to present.  
    Source: Prophet Finance
    The Westwood, Kan.-based company said in a conference call with analysts that it expects its first-quarter profits to be in the upper 30-cents-a-share range. That's below First Call's consensus expectation of 44 cents a share.

    Sprint also said that results for 2001 would be at the low end of previous expectations of $1.65 to $1.75 a share. First Call had expected around $1.66 a share. Sprint said investments in Brazil could cut annual results by another 8 cents a share.

    For the fourth quarter, the company's core FON Group reported a net income of 41 cents a share for the quarter, just ahead of First Call's consensus estimate of 39 cents a share. But operating profits fell 18 percent as competition and falling prices in long distance countered strong growth in the company's data and wireless services.

    Shares in the long-distance telephone company were off 2 cents, or about 1 percent, to $24.78 in early trading Wednesday morning. Analysts expect the company to suffer as it struggles to transition to data and wireless, along with AT&T and Worldcom.

    "2000 was a roller-coaster ride for Sprint and the industry," said CFO Arthur Krause in the conference call Thursday. Economic troubles and softening long-distance revenues brought the company down faster than it could make the transition to higher growth revenue streams, he said. "We still have a lot of work to do."

    The company's core FON Group saw operating income decline amid flat revenue. Operating income fell to $598 million from $731 million a year ago, an 18 percent decline. For the year, operating income fell 3 percent to $2.83 billion.

    Fourth-quarter revenue of $4.39 billion was down slightly from $4.42 billion in the fourth quarter of 1999. For the year, revenues grew 3 percent to $17.69 billion.

    Operating cash flow in the quarter was $1.2 billion, down 8 percent from $1.29 billion in the fourth quarter a year ago. For the year, operating cash flow was $5.1 billion compared with $5.06 billion in 1999.

    Income from continuing operations was $359 million in the fourth quarter, a decline of 14 percent from $417 million a year ago. Income from continuing operations for the year decreased 5 percent to $1.61 billion from $1.7 billion in 1999.

    The bright spot
    Sprint PCS was the quarter's bright spot. The company reaffirmed its outlook for 2001, but said it remained cautious because of a slowing economy. EBITDA (earnings before interest, taxes, depreciation and amortization) should be in the $225 million to $250 million range for the first quarter, and the division should break even on earnings for the year, the company said.

    PCS revenues increased 84 percent to $1.94 billion in the fourth quarter compared with $1.06 billion a year ago. Annual revenues rose 88 percent to $6.34 billion from $3.37 billion in 1999. Net loss was on target with First Call's expected loss of 53 cents a share

    Operating cash flow was positive for the third consecutive quarter--bringing in $21 million for the quarter compared with a loss of $501 million in 1999's fourth quarter. For the year, operating cash flow was at a loss of $27 million compared with a loss of $1.71 billion a year ago.

    Subscriber growth was also strong, with growth up 19 percent over the fourth quarter of 1999. The PCS Group ended the year with 70 percent more subscribers than a year ago.

    The company's soft spot, long distance, saw operating income down 17 percent in the quarter because of pricing pressures, while call volumes increased.

    Operating income was $342 million, down 17 percent from $413 million a year ago. Annual operating income was $1.57 billion in 2000 compared with $1.58 billion in 1999. Long-distance calling volumes rose 18 percent for the quarter and 18 percent for the year.

    Sprint continued broadband expansion during the quarter, having installed DSL (digital subscriber line) equipment in more than 950 central offices in 31 markets. By the end of 2001, DSL will be in more than 2000 central offices in 86 markets, which will enable the company to reach 18 million households and 3 million business locations across the country, the company said.

    Among other Sprint units:

    • The local telecommunications division saw revenue rise 2 percent for the quarter and 5 percent for the year compared with the same periods last year. For the quarter, revenues were $1.56 billion compared with $1.53 billion a year ago. For the year, revenues were $6.11 billion compared with $5.83 billion in 1999.

    • The global markets unit, which included the troubled long-distance business, saw numbers decline sharply. During the conference call, executives said the division would see income below the fourth-quarter numbers because of even lower long-distance results.

    Revenue for the global markets was down to $2.57 billion compared with $2.61 billion a year ago. In 2000, revenues were $10.53 billion compared with $10.31 billion in 1999. Sprint said pricing pressures in the long-distance voice segment, declines in higher margin services revenues, and wireless replacement were to blame.

    Operating income declined 66 percent to $92 million, from $267 million a year ago.

    • Product Distribution and Directory Publishing saw revenue increase 19 percent in the quarter to $508 million from $428 million a year ago. Operating income increased 17 percent to $74 million in the fourth quarter from $63 million a year ago.