Sprint Nextel (S), the third-largest U.S. wireless carrier, reported fourth quarter 2010 adjusted net loss per share of 31 cents missing the Zacks Consensus Estimate of net loss of 29 cents. Sprint reported its fourth quarter results before the opening bell.

Adjusted net loss narrowed from the year-ago loss of 34 cents. The year-over-year loss narrowed as Sprint gained customers from its expanded fourth generation long term evolution (4G LTE) services.

Fiscal 2010 adjusted net loss expanded to $1.16 compared with a net loss of 84 cents in the prior year.

Consolidated operating revenue grew 6% year over year to $8.3 billion in the reported quarter and was above the Zacks Consensus Estimate of $8.18 billion.

Higher revenues were driven by strong prepaid Boost service and equipment revenues partially offset by lower contributions from its wireline and post-paid wireless businesses. Consolidated operating revenue inched up 1% to $32.6 billion in fiscal 2010 from $32.3 billion in 2009.

Adjusted OIBDA (operating income/loss before depreciation, amortization, asset impairments and abandonments) fell 7% year over year to $1.3 billion. Higher handset subsidy as well as increased sales expenses dragged adjusted OBIDA in the fourth quarter. In fiscal 2010, adjusted OIBDA was $5.6 billion, down 12% year over year.

Segment Results

Wireless: Consolidated revenue from the wireless segment increased 8% year over year to $7.36 billion. Sprint gained approximately 1.1 million subscribers in the reported quarter, which represents net additions of 704,000 in retail subscribers and 393,000 in wholesale and affiliate subscribers. This represents the best wireless subscriber growth since the first quarter of 2006.

Sprint added 58,000 net post-paid customers during the quarter, which reflects a considerable improvement from a net loss of 504,000 customers in the year-ago quarter and 107,000 subscribers lost in the previous quarter.

This represents the first quarter of net post-paid additions since the second quarter of 2007. The company added 453,000 post-paid subscribers from the CDMA network while losing 395,000 customers from the iDEN network.

With regard to prepaid subscription, Sprint added a total of 646,000 customers, which represents net additions of 1.4 million CDMA customers, partially offset by a net loss of 768,000 iDEN customers.

At the end of the fourth quarter, Sprint had 49.9 million customers (including 33.1 million post-paid, 12.3 million prepaid and 4.5 million Wholesale and Affiliate) compared with 48.1 million in the year-ago quarter.

Post-paid ARPU (average revenue per user) remained flat year over year at $55 as higher monthly recurring revenue totally offsets lower coverage, casual data and text revenues. Prepaid ARPU plunged to $28 from $31 in the year-ago quarter, attributable to the Assurance Wireless plan and the acquisition of Virgin Mobile in November 2009 as Virgin Mobile customers have lower ARPU as against Boost Mobile customers.

Sprint posted post-paid churn of 1.86% compared with 2.11% in the year-ago quarter and 1.93% in the sequential quarter. The lower churn is driven by improved customer retention, handsets upgrades and new handset offerings.

Prepaid churn improved to 4.93% from 5.56% in the year-ago quarter and 5.32% in the previous quarter. The year-over-year improvement is attributable to the lower churn of Boost Monthly Unlimited subscribers and Assurance Wireless customers.

Wireline: Revenues from the wireline segment declined 7% year over year to $1.2 billion owing to erosion in voice and data revenues declining 11.3% and 13.4%, respectively. Internet revenues also dropped 2.4% year over year.

Liquidity

Sprint enjoys a strong balance sheet with approximately $5.5 billion in cash and short-term investments at the end of 2010 compared with $3.9 billion at the end of 2009. Long-term debt decreased to $18.5 billion from $20.3 billion in the prior year.

The company spent $608 million in capital expenditure in the fourth quarter compared with $554 million in the year-ago quarter. The company generated free cash flow of $913 million, up from $666 million in the year-ago quarter.

Outlook

For 2011, Sprint Nextel expects post-paid and total net subscriber additions to improve annually. Capital expenditure is expected to be approximately $3 billion. The company is also likely to generate positive free cash flow during 2011.

Our Analysis

The company’s deployment of 4G WiMax is a major prospect in the wireless market and may boost the company’s revenues. Sprint will continue its prime focus on 4G network that currently covers 71 U.S. markets via Clearwire Corp.’s (CLWR) network. This reach keeps the company well ahead of its rivals AT&TInc. (T) and VerizonCommunications Inc.(VZ).

We believe an attractive wireless product/service mix, expanding 4G network footprint, Sprint prepaid brands like Assurance Wireless and Virgin Mobile and Boost Mobile’s Monthly Unlimited plans will continue to add opportunities in the wireless business. However, heavy expenditure involved in deploying 4G services, competitive threats as well as the rollout of competitive price plans by its rivals make us cautious on the stock.

We are currently maintaining our long-term Neutral recommendation on Sprint, supported by the Zacks #3 Rank (Hold).

 
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