Sprint profit falls, growth fears hurt shares

By Sinead Carew

NEW YORK (Reuters) - Sprint Nextel Corp posted a fall in second-quarter profit on Wednesday and said customer cancellations could hurt current-quarter growth, sending shares in the No. 3 U.S. mobile phone service down as much as 6.8 percent.

Sprint, which has struggled with customer defections due to network problems and other issues, reported improvements in customer growth for the second quarter but said it would not last through the current quarter.

"We still have work to do for the third quarter," Chief Financial Officer Paul Saleh said in an interview with Reuters.

"It's too early to tell but we know already from historical patterns that the third quarter is going to see an upturn in churn," he said, citing an industry term for cancellations. "It's going to be a challenge for us to make it up."

Sprint added 16,000 customers who pay monthly bills, or postpaid subscribers, in the second quarter. That compares with an average forecast of 28,000 from six analysts contacted by Reuters, based on a range of a loss of 20,000 subscribers to a gain of 50,000.

"Even if they eked out 16,000 net additions in the second quarter it really doesn't mean a whole heck of a lot particularly if they go negative in the next quarter," said Stifel Nicolaus analyst Chris King.

Sprint had promised a return to growth after three quarters of losing postpaid subscribers, who are viewed as more lucrative and less likely to leave than customers who pay for calls in advance. Its shares had risen as much as 14 percent since January on expectations it would reverse the trend.

But Sprint said the return to postpaid customer growth could be short-lived as it expects churn to increase in the current quarter before improvements in the fourth quarter.

The company's second-quarter net income fell to $19 million, or 1 cent per share, from $370 million, or 10 cents a share, a year earlier.

Excluding one-time items and amortization, Sprint earned 25 cents per share, topping the average analyst forecast by 3 cents, according to Reuters Estimates. Revenue of $10.16 billion came in slightly below expectations.

"IPHONE EFFECT" ABATES

"The company's not out of the woods yet. It was incrementally positive but it wasn't a substantial turnaround," said Stanford Group analyst Michael Nelson.

Sprint said postpaid churn fell to a little more than 2 percent from 2.3 percent in the first quarter.

Surterre Research analyst Todd Rethemeier said Sprint did not appear to regain market share lost to bigger rivals AT&T Inc and Verizon Wireless, owned by Verizon Communications Inc and Vodafone Group Plc.

Sprint, which has had success selling services such as Web surfing and music, was seen as the most vulnerable to losing customers as a result of AT&T's exclusive deal to sell the music and video-playing iPhone from Apple Inc.