Foolish Forecast: Sprint Nextel's Year to Forget

Everyone's least favorite wireless-services provider these days -- Sprint Nextel (NYSE: S  ) -- will announce fourth-quarter earnings Thursday. Here's what investors should expect from the company.

What analysts say:

  • Buy, sell, or waffle? Of the 32 analysts tracking Sprint Nextel, eight are bold enough to say "buy," 21 are on the fence with a hold, and three say to sell. In our Motley Fool CAPS investor database, 788 of our 84,000 users have rated the stock, giving it two stars.
  • Revenue. Revenue is estimated to be $9.9 billion this quarter, down 5% from last year.
  • Earnings. The average analyst is expecting earnings of $0.18 per share, significantly down from $0.29 last year.

What management says:
New CEO Dan Hesse already let the cat out of the bag as far as what kind of quarter to expect -- and it isn't pretty. The company did see subscriber gains in its wholesale and affiliate business, but noted, "These gains were offset by net losses of 683,000 post-paid subscribers and 202,000 traditional pre-paid users."

Unfortunately, these lost users are the ones most profitable to the company, so losing them to competitors AT&T (NYSE: T  ) , Verizon Wireless -- a joint venture of Verizon Communications (NYSE: VZ  ) , and Vodafone (NYSE: VOD  ) -- just adds salt to already exposed wounds.

The balance of the year doesn't sound any better. Cutting to the chase, the company stated it is "anticipating continued downward pressure on subscriber trends, revenues, and profitability in 2008." Ouch.

What management does:
Sprint Nextel's ills are out in the open for all to see. Wireless metrics continue to show ugly trends:

Metric

03/06

06/06

09/06

12/06

3/07

6/07

9/07

Net Subscriber
Additions*

1,338

704

233

742

568

373

(60)

Churn

2.3%

2.4%

2.8%

2.7%

2.7%

2.5%

2.7%

ARPU

$60.07

$59.75

$58.64

$57.55

$56.48

$57.19

$56.15

Source: Sprint Nextel.
*In thousands.

One Fool says:
On top of its internal problems, Sprint Nextel is being forced to compete with nationwide unlimited-use plans from major rivals. Any revival of the company's next-generation network plans with one-time WiMAX partner Clearwire (Nasdaq: CLWR  ) is still under the dome of silence as well. Rumors speculate that Intel (NYSE: INTC  ) , Best Buy (NYSE: BBY  ) , or other interested parties might infuse capital into an effort to build the nationwide network, but the companies are staying mum at this point.

Sprint Nextel's move to churn out some of its customer base encourages me. Maybe the company's making the hard choices to clean up its problems at last. But many core issues of customer satisfaction and service will take time to heal before positive growth resumes.

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