Sprint Nextel posted a quarterly loss of $29.45 billion Thursday due to a huge goodwill write-off and forecast deepening subscriber losses, pushing its stock down as much as 13 percent to a five-year low.
The No. 3 U.S. mobile service said it would stop paying dividends for the foreseeable future, and Chief Executive Dan Hesse said it would take many quarters to turn the company around and rebuild its brand.
"To be frank, the issues we face are more difficult than what I expected to find," Hesse, who replaced Gary Forsee as CEO in December, told analysts on a conference call. "It takes hard work and time to regain a reputation."
Sprint has been losing ground to rivals amid network and customer service problems. Analysts had expected the fourth quarter to be bad, but they were hoping for a clear plan from the company to turn around its business.
Instead, Sprint surprised Wall Street with a forecast for subscriber losses that was "considerably worse than even the most bearish estimates out there," said Stanford Group analyst Michael Nelson.
Sprint forecast that in the current quarter it would lose 1.2 million customers who pay monthly bills, compared with 683,000 such losses in the fourth quarter. Nelson had expected a first-quarter loss of 400,000.
Sprint said it does not expect subscriber losses to be any better in the second quarter.
Smaller rival T-Mobile USA, owned by Deutsche Telekom, on Thursday reported a gain of 951,000 net new customers in the fourth quarter.
Sprint forecast first-quarter operating income of $1.8 billion to $1.9 billion before depreciation and amortization. Stifel Nicolaus analyst Chris King had expected $2.3 billion.
"The bar they're setting here better be rock-bottom," King said.
He said Sprint could beat its outlook, noting that Hesse had a history of conservative guidance at Embarq, the Sprint spin-off that he previously headed.
No Silver Bullet
Sprint said that starting Friday it will offer a $99.99-per-month unlimited calls and data plan.
The move goes further than unlimited plans unveiled last week by larger rivals AT&T and Verizon Wireless, which were just for voice. But the Sprint plan is not as aggressive as some analysts had expected. There had been speculation that Sprint would spur a price war by announcing unlimited plans for as low as $60 a month.
Stifel's King said the Sprint plan was unlikely to help the company boost its market share significantly.
Sprint said it was assessing a reorganization of its business model and warned that the new price plan was "not a silver bullet" for the company, which needs to stem customer cancellations, improve how it handles customer telephone inquiries, and create a simpler branding message.
Hesse said the company's brand was strong but "lacked relevance and a clear message." He set out plans to keep Sprint as the umbrella brand and to use the Nextel brand only for features such as its push-to-talk service.
Sprint's fourth-quarter loss of $10.36 a share compared with a profit of 9 cents a share, or $261 million, a year earlier.
Revenue fell 6 percent to $9.8 billion, missing the average Wall Street forecast of $9.91 billion.
Excluding one-time items such as a $29.7 billion goodwill write-off from its acquisition of Nextel Communications, Sprint earned 21 cents per share, topping the average Wall Street forecast of 18 cents, according to Reuters Estimates.
Post-paid average revenue per user was $58 per month in the fourth quarter, and the company said it expects that figure to fall to a little over $56 in the first quarter. It said it expects a further drop in the second quarter, but not as steep.
The company said it borrowed $2.5 billion from a revolving credit facility, and executives sought to reassure analysts that the company was in compliance with its debt covenants despite the weak outlook.
Sprint shares were down 76 cents to $8.19 in morning trade on the New York Stock Exchange after falling as low as $7.76, their weakest level since October 2002, earlier in the session. The shares have fallen almost 70 percent since August 2005, when Sprint bought Nextel.
Stifel's King said that if Sprint shows any signs of improving in the coming months, the stock could prove cheap.
"I think there's still too much uncertainty to buy the stock today," he said, but added that he wouldn't sell the shares either at the current low levels.