Sprint sees slow year ahead

After reporting mediocre first-quarter results, Sprint said on a conference call Tuesday that its second-quarter and full-year results are likely to miss estimates.

Following a report that first-quarter results came in just shy of analysts' expectations, the phone company said on its conference call that earnings per share and EBIDTA (earnings before interest, depreciation, taxes and amortization) would come in short of projections for the year. Analysts said Sprint may be the harbinger of more bad news for telecommunications companies.

Sprint had already warned in February that its 2001 earnings would be at the low end of previous forecasts. Shares in the beleaguered company have plunged 60 percent over the past year amid a sell-off in its sector due to concern about shrinking sales of consumer long-distance services. The stock was off another 91 cents to $22.50 in morning trading.

On a conference call Tuesday morning, Chief Operating Officer and President Ron LeMay gave projections for the second quarter and the remainder of the year.

Earnings per share are likely to be in the low range of 30 cents a share for the second quarter, putting them well below First Call's estimate of 38 cents a share.

For the year, earnings are likely to be 10 percent to 15 percent below First Call's consensus estimate of $1.54 per share, LeMay said. In Sprint's February warning, it had projected results would be at the low end of previous guidance of $1.65 to $1.75 a share.

EBITDA for the year is expected to be $4.5 billion to $4.6 billion, LeMay added. He also said the company's planned $6.2 billion in capital expenditures for the year has been put under review, and the company will "evaluate various alternatives to fund our growth plan."

First-quarter for Sprint, Sprint PCS
Sprint reported first-quarter earnings of $315 million, or 36 cents a share. That didn't compare favorably to last year's $1.25 a share. The 72 percent decline was due to lower calling prices, stiff competition and investments to build its data and wireless businesses, the company said.

Income from continuing operations was $316 million, or 36 cents a share, including a gain of 1 cent a share from investing activities. First Call had been expecting earnings of 37 cents a share. Last year, the company had reported $445 million, or 50 cents a share.

The company also reported operating revenues of $4.36 billion, down from $4.4 billion a year ago, and slightly below First Call's expectations of $4.4 billion.

The company's PCS Group (NYSE: PCS), up 38 cents to $23.38, also announced first-quarter results Tuesday and gave its outlook for the remainder of the year.

The telecom arena
Sprint's outlook doesn't bode well for competitors, who have yet to report their quarterly results.

"We expect that 2001 will be a challenging year for telecoms," wrote Dresdner Kleinwort Wasserstein analyst Bruce Roberts in a preview of telecommunications earnings.

The analyst held a "buy" rating on SBC Communications (NYSE: SBC) and Verizon Communications (NYSE: VZ); an "add" on WorldCom (Nasdaq: WCOM); and a "hold" on AT&T (NYSE: T), BellSouth (NYSE: BLS) and Sprint (NYSE: FON).

Roberts said that data sales, driven by business customers, are being dented by the economic downturn. That's likely to put first-quarter sales growth rates below full-year guidance.

"And, if the economy doesn't pickup, we would expect 2001 full-year sales growth to be 100 to 200 basis points below guidance," Roberts added.

The analyst trimmed his estimates for the year, for the RBOCs (regional bell operating companies), including BellSouth, Verizon and SBC, as well as long-distance companies WorldCom, AT&T, and Sprint.

Even the high-growth data and wireless businesses are being dented by the economic downturn, with Nextel (Nasdaq: NXTL) and Verizon Wireless reporting weaker-than-expected subscriber growth.