A Loss And a Gain for Sprint

Sprint Nextel's second-quarter profit dropped 95 percent from the comparable quarter a year ago, but Wall Street considered it an improvement over past quarters.

Analysts and investors critical of Sprint's spending habits and merger strategy yesterday applauded its ability to attract new customers during its latest quarter, but also warned it has considerable work left to do. The Reston company continues to grapple with high costs and heavy investment in a new high-speed network.

Gary D. Forsee, Sprint's chairman and chief executive, also warned that tough terrain still lies ahead.

"The competitive environment remains quite strong, so we will see some challenges still in the third quarter," he said in a conference call, adding that business could pick up toward the end of the year.

During the quarter, Sprint added 400,000 net new customers, but its performance was overshadowed by that of its competition. During the same period, AT&T added 1.5 million subscribers and Verizon Wireless added 1.3 million customers.

Sprint rebounded from a loss of $211 million during the first three months of the year, and many analysts commended the company for adding subscribers after nearly a year of major defections. Excluding some expenses, Sprint said its earnings were 25 cents a share, exceeding the 22 cent average estimate of analysts surveyed by Bloomberg News.

Sprint, the third-largest U.S. wireless carrier, reported profit of $19 million (1 cent per share) during the quarter ended June 30, compared with $370 million (10 cents a share) a year earlier. Revenue increased 1.5 percent, to $10.16 billion from $10.01 billion.

Sprint's subscriber base is 54 million, a 5 percent increase over the previous year. The bulk of its additions during the quarter came from 169,000 customers for the Boost prepaid brand, which targets people with poor credit, and it added 16,000 customers on monthly contracts, which are considered a more reliable source of income. Sprint said it lost monthly customers at a slightly slower rate after losing 714,000 customers over the past three quarters.

"It's certainly not a good metric, but it's the first quarter in a year they've seen any growth at all," said Christopher King, an analyst with Stifel Nicolaus, an investment firm. "So they are showing signs of improvement."

The company's stock closed down 45 cents yesterday at $19.77 a share.

Challenges associated with the two-year-old merger of Sprint and Nextel still linger. Merger-related costs reached $163 million during the quarter, up from $118 million a year ago. Sprint has also spent more than $15 billion over the past two years acquiring affiliated companies that sell the Sprint brand in smaller markets. Many of those companies had sued Sprint and Nextel for violating a prior agreement not to compete with affiliates in their territories.

Those costs, combined with an expensive marketing campaign and sizable investments in its new high-speed network dragged down the company's earnings, analysts said. Sprint said it spent $51 million during the quarter on a new wireless technology called WiMax. The company said it would spend $3 billion on the project, which some analysts criticize as a risky investment because WiMax has not been tested nationally and there is uncertain consumer demand for the product.