Sprint Nextel Corp. (NYSE: S) -- with a name that sounds somewhat ironic today -- posted a mammoth $29.5 billion loss today as it wrote down $29.7 billion of the $36 billion 2005 purchase of Nextel Communications Inc. and other companies. In essence, acknowledging it paid (way) too much for that acquisition.If that was the only ugly number in this fourth-quarter report, then perhaps investors wouldn't have reacted the way they did. Sprint's stock is down some 8% today, following the report, after the company had already lost over 57% of its value in the past 52 weeks; 37% in 2008 alone.
The news is unpleasant. Sprint reported a fourth-quarter net loss of $10.36 a share. While excluding the writedown Sprint earned 21 cents per share, beating the 18 cents per share expected by analysts surveyed by Thomson Financial, its sales fell 5.7% to $9.85 billion, missing analysts' estimates. The third-biggest U.S. wireless carrier also had to borrow $2.5 billion under a credit line to get access to cash, although it claimed it made the move due to current credit market conditions.
And that's not all. Sprint is losing customers, specifically 683,000 valuable customers (contract, or "post-paid") during the quarter. While it saw an increase in customers through its Boost prepaid brand, recently appointed CEO Dan Hesse said the company would lose 1.2 million customers during the first quarter and would see additional losses in the second quarter. Also, subscribers on long-term contracts spent $58 a month on their bills, down from $60 a month last year. Somehow, the churn rate remained unchanged at 2.3% (most likely offset by Boost).
Sprint has announced it would stop paying dividends for the foreseeable future.
With the CEO saying that business is worse than he expected and deteriorating, investors do not feel very confident about it turning around. For that matter, neither does Hesse. But the company did announce massive job cuts and an unlimited calling plan for $89.99 a month, undercutting competitors, to attract back customers.
The question now is whether the changes made to its line of top executives, starting with Hesse and recently also the CFO and others, would be enough to satisfy shareholders, especially when comparing to competitors AT&T (NYSE: T) and Verizon (NYSE: VZ) -- both companies' shares up nearly 3.5% today -- reporting additional contract customers, not less. As DealBook points out, even an analyst has been urging shareholders to replace certain board members.
To demonstrate more acutely how problematic the purchase of Nextel has been, the Wall Street Journal points out that "When the marriage of Sprint and Nextel was announced in 2005, each company had a market capitalization of about $33 billion. Today, the combined company's market cap is about $26 billion."
So really, if Hesse doesn't expect the turnaround to happen the next few quarters, why should anyone else?
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