Sprint Nextel's (S.N) stronger than expected wireless operating income helped it post a quarterly net loss that was narrower than Wall Street estimates.
But investors shrugged off the surprise, which one analyst attributed partly to slower than expected spending related to a network upgrade project.
Shares in the No. 3 U.S. mobile provider pulled back from an earlier 7 percent rise, and were just up 1 cent in the afternoon.
"While the results from the quarter, from a financial perspective, were better than anticipated, it appears that none of the longer term risks around execution and financing have changed at all," said Evercore analyst Jonathan Schildkraut.
As well as working to attract new customers and retain existing ones in a fiercely competitive market, Sprint is also embarking on a $7 billion project to upgrade one of its two networks and close down the other.
Investors worried that slower than expected first quarter spending on the project could signal a delay and creates more uncertainty for the rest of the year, Schildkraut said.
Sprint's first quarter capital spending of about $700 million compared with his expectation for about $1.4 billion.
Sprint told analysts on a conference call that the upgrade would cover 100 million to 120 million people by year's end. This was below Schildkraut's expectation for 123 million.
But Sprint said the project was on track and that it expects to double spending on it this quarter.
LOWER SPENDING HELPS BOTTOM LINE
While the company added subscribers to its Sprint network in the quarter, it lost customers from its Nextel iDen network, which it is in the process of shutting down.
This led to a total net loss of 192,000 subscribers, which was worse than estimates ranging from a loss of 150,000 to a gain of 33,000, according to six analysts contacted by Reuters.
Sprint's biggest rival, Verizon Wireless, a joint venture of Verizon Communications Inc (VZ.N) and Vodafone Group PLC (VOD.L), added 501,000 subscribers in the quarter and AT&T Inc (T.N) added 187,000.
The weaker customer numbers helped reduce one-time phone subsidy costs, leading to adjusted wireless operating income before depreciation and amortization (OIBDA) of $1.05 billion, well ahead of analyst expectations.
Kevin Roe, an analyst from Roe Equity Research, said he had expected wireless OIBDA of $860 million.
"You save money when you grow slower," Roe said. "It's a low-quality beat ... because wireless growth underperformed. That's disappointing for their long-term prospects."
Sprint's bottom line was also helped in the first quarter by stronger than expected customer spending and lower spending by the company on new customers and subscribers upgrading to new smartphones.
Sprint Chief Executive Dan Hesse pointed to a combination of factors including lower spending on existing customers. The percentage of customers upgrading to a new phone "was much lower than historical levels" because the company changed its upgrade policy to reduce expenses, Hesse told Reuters.
"Upgrade expenses are fairly significant," he said.
Sprint rivals Verizon Wireless and AT&T have also been working to reduce upgrade costs.
Hesse has come under fire for his commitment to pay Apple Inc (AAPL.O) $15 billion over several years for its popular iPhone.
He pointed to first quarter numbers to defend his decision. Sprint sold 1.5 million iPhones in the quarter, of which 44 percent went to new Sprint customers. About 60 percent of the new customers said they would not have come to Sprint if it did not carry iPhones, he said.
"The evidence so far supports our decision to carry the iPhone," Hesse told analysts on a conference call.
MOBILE ARPU IMPROVES
Sprint, the No. 3 U.S. mobile service provider, posted a loss of $863 million, or 29 cents per share, compared with a loss of $439 million, or 15 cents per share, in the year-ago quarter.
Revenue rose 5 percent to $8.7 billion from $8.3 billion and was in line with Wall Street estimates of $8.7 billion, according to Thomson Reuters I/B/E/S.
Sprint's average monthly revenue per user (ARPU) of $59.88 was ahead of several analysts' expectations. Citi analyst Michael Rollins had expected $59 while Robert W. Baird analyst Will Power had expected $59.48.
Sprint said it expects 2012 adjusted OIBDA to be at the high end of its previously announced forecast of between $3.7 billion and $3.9 billion. It forecast full-year net service revenue growth of 4 percent to 6 percent and said full-year capital expenditures would be about $6 billion.
Sprint shares were up 1 cent or 0.4 percent at $2.48 on the New York Stock Exchange in afternoon trading.
(Reporting By Sinead Carew; Editing by Maureen Bavdek and Phil Berlowitz)