Here’s Why You Shouldn’t Buy What Sprint Nextel Corporation (S) Is Selling

Page 1 of 2

Sprint Nextel CorporationIf you regularly read earnings reports and listen in on conference calls, you’re used to CEOs and other senior management folk spinning even the most dreary results; that’s what they do. Can’t really blame a company for trying. But the recent efforts of CEO Dan Hesse of Sprint Nextel Corporation (NYSE:S) to shed a positive light on its recent Q4 and 2012 is downright shameful.

To be fair, there actually were a couple of areas of Sprint’s financial statement that weren’t horrible, but it’s time Hesse and team face facts; the uphill climb to relevancy is a long one, and it’s going to be some time before Sprint sees the light of day, if it ever does.

A few of the specs
One of the few bright spots in Sprint’s most recent quarter, and for fiscal year 2012, is its 5% jump in revenues for the year, up to $35.3 billion. Of the total revenues Sprint enjoyed last year, $27.1 billion of it came from its core wireless unit. That’s the good news. The flip side of Sprint’s wireless growth was the drag on earnings its Nextel unit brought to the table.

While Sprint was adding a net 683,000 subscribers, the soon-to-disappear Nextel lost over a million in Q4. Yes, Sprint was able to salvage about 50% of the Nextel defections, but in the lightening fast mobile computing industry, every day spent taking two steps forward and one step back, puts Sprint further behind industry leaders Verizon Communications Inc. (NYSE:VZ) and AT&T Inc. (NYSE:T) . Time is of the essence, and Sprint can’t get rid of Nextel fast enough.

The ups and downs of selling high-end smartphones, in this case Apple Inc. (NASDAQ:AAPL)‘s iPhone in particular, also hit Sprint where it hurts. The 2.2 million Apple phones Sprint sold in Q4 was a record, and that’s good; but Verizon’s 6.2 million, and AT&T’s industry-leading 8.6 million iPhones sold, make Sprint’s 2.2 million look paltry. And, just as with Verizon and AT&T, there’s the significant near-term financial hit that Sprint takes doling out hundreds of dollars in subsidies for each smartphone it sells.

The 4 million 4G LTE smartphones Sprint sold by the end of Q4 is a decent result when you consider it’s a latecomer to the 4G party. With only 58 cities currently 4G -ready, Sprint must get the “…nearly 170 additional cities in the coming months…” up and running, and now.

When you add it all up, Sprint lost a cool $1.3 billion in Q4, equal to $0.44 a share; almost identical to 2011’s fourth quarter. That beat analyst estimates of a $0.46 loss in the quarter, but Hesse should know better than to hang his hat on that – not exactly highlight reel material.

The latest with SoftBank
The introduction of Japan’s SoftBank into the Sprint picture is what investors have been relying on to salvage Sprint’s dismal efforts, particularly compared to Verizon and AT&T. But the news from a couple of days ago regarding SoftBank’s debt issuance plans puts a damper on what was one of Sprint’s few upsides.

SoftBank’s $3.2 billion, four-year retail debt offering — rumored to be in the works and ready to hit the street as early as next month — will barely make a dent in the $17.7 billion in debt it used to buy a stake in Sprint to begin with. And the $3.1 billion Sprint received from SoftBank in Q4? That came in the form of a low-interest, seven-year convertible bond, increasing Sprint’s massive debt load to just under $24 billion.

Page 1 of 2