NEW YORK (Reuters) - Sprint Nextel Corp. (S.N) posted a higher quarterly profit on Wednesday and its shares rose 6 percent after the company reassured investors by repeating its forecast for a turnaround in subscriber losses.
The No. 3 U.S. wireless service provider has been losing customers in recent quarters, so investors were relieved that it reiterated its forecast for a net gain in postpaid customers, who pay monthly bills, in the second quarter.
SurTerre Research analyst Todd Rethemeier said that while he would like to see more concrete signs that Sprint could turn the corner, some investors were glad the company had repeated the expectations it expressed in early January.
“Maybe people are saying ‘We’re a month and half past that and they’re still saying it, so that’s a good thing,’” he said.
Sprint shares, which fell 5 percent on Tuesday amid the widespread stock market weakness, rose $1.11 in morning trade to $19.56 on the New York Stock Exchange.
The stock has fallen about 25 percent in the last year as the company reported disappointing customer growth and lost market share to rivals while it struggled to integrate its August 2005 acquisition of Nextel Communications.
Earnings in the fourth quarter rose to $261 million, or 9 cents per share, from $195 million, or 7 cents per share, a year earlier, as the company added subscribers to the Sprint network, which mostly serves consumers.
Sprint said it earned 29 cents per share before amortization charges, in line with average analyst expectations, according to Reuters Estimates.
Net operating revenue rose to $10.44 billion from $9.79 billion. Analysts, on average, had expected $10.36 billion, according to Reuters Estimates.
The Nextel network, which mainly serves business customers and has suffered from technical problems, reported net losses in postpaid customers.
Stanford Group analyst Michael Nelson said Sprint’s long distance fixed-line business performed better than expected.
“It looks like they made up for some of the weakness in wireless in their long distance business,” he said, pointing to long distance operating income before depreciation and amortization of $259 million, versus his $186 million forecast.
Nelson also said he was impressed that Sprint outlined a clear strategy for winning back subscribers.
Sprint said customer cancellations, known in the industry as churn, rose to 2.3 percent in the fourth quarter from 2.1 percent a year before, citing steeper cancellations by customers using its Nextel iDen network, which combines walkie-talkie and cellular technology.
Sprint in January set itself a goal to reduce churn to below 2 percent over the course of 2007.
The company hopes to improve its iDen numbers by selling phones from Motorola Inc. MOT.N which work on both the Nextel network and the Sprint network, based on CDMA technology.
Chief Executive Gary Forsee told analysts that Sprint had sold 200,000 of these phones by the end of February and hopes to sell 2 million to 3 million combination phones in 2007.
Chief Financial Officer Paul Saleh said he expected Sprint to post another net loss in postpaid subscribers in the first quarter, before posting net additions in the second quarter.
Sprint had said in January that it added a net 742,000 customers in the fourth quarter, including 876,000 wholesale customer additions and net losses of 306,000 postpaid subscribers. It ended 2006 with 53.1 million customers.
Analysts have said Sprint lost market share to rivals such as AT&T Inc.’s (T.N) Cingular Wireless and Verizon Wireless, a venture of Verizon Communications Inc. (VZ.N) and Vodafone Group Plc. (VOD.L).
Forsee told analysts that Sprint was not interested in participating in the government auction for wireless airwaves in the 700 Megahertz band expected to take place this year.
The company lowered its capital spending budget for the year to $8 billion from its previous target of $8.5 billion.