Sprint’s Cost Cutting Lifts It to Profitability

Sprint Corp. said Wednesday that it swung to a profit in the fourth quarter from a loss a year ago as cost cutting outweighed weak demand and stiff competition for long-distance and data services.

Investors overlooked Sprint’s recent management turmoil and pushed up its long-distance and wireless stocks after the company stood by its 2003 guidance.

Sprint had tried to hire BellSouth Corp.’s vice chairman, Gary Forsee, as its new chief executive, but BellSouth sought a restraining order to prevent Forsee from working for a rival for 18 months after leaving the company. A Superior Court judge in Atlanta said she would decide this week whether to release Forsee from his employment contract with BellSouth.

Meanwhile, the Wall Street Journal said Sprint’s top two executives, Chairman William Esrey and President Ronald LeMay, were being forced out over their personal use of a tax shelter that is being examined by the Internal Revenue Service.

Sprint declined to comment.

Shares of FON Group, Sprint’s main long-distance and local telephone and data business, closed at $12.52, up 16 cents, or 1.3%, on the New York Stock Exchange. Shares of Sprint PCS, the wireless telephone arm, jumped 31 cents, or 8.4%, to $4, also on the NYSE.

Overland Park, Kan.-based Sprint and other long-distance carriers have seen calling volumes drop as more customers have shifted to mobile phones and e-mail. Sprint slashed administrative expenses 11% in the fourth quarter to offset shrinking long-distance sales.

Meanwhile, Sprint PCS resumed subscriber-growth in the fourth quarter, after seeing a drop in customers in the third quarter. The company revamped its focus to target more-lucrative customers and improve customer retention through better service and compelling data features.

Sprint’s fourth-quarter net income, including its long-distance, local and wireless operations, totaled $39 million, compared with a loss of $1.23 billion a year ago. The year-ago quarter included charges to write down assets and cut jobs. Revenue edged up to $6.53 billion from $6.52 billion.

“Revenues were a little light, both in the local and long-distance side. There’s continued tepid demand,” said CIBC World Markets analyst Tim Horan.

Profit from continuing operations for the FON Group totaled 33 cents a share in the fourth quarter, contrasted with a loss of $1.02 a share in the year-ago period.

Excluding one-time items, earnings per share rose to 37 cents from 31 cents over the same period. Wall Street analysts had expected FON Group to earn 38 cents a share, according to research firm Thomson First Call.

FON Group revenue fell to $3.66 billion from $3.87 billion a year ago, with sales in the long-distance division dropping to $2.1 billion from $2.3 billion a year ago. Local revenue fell about 1% to $1.56 billion.

Sprint said overall demand remains weak, but it continues to win over corporate accounts from financially troubled rivals, and it expects these contracts to boost revenue by nearly $400 million over the next few years.

Sprint PCS had a fourth-quarter loss from continuing operations of 25 cents a share, compared with a loss of 33 cents a year ago.

The wireless unit added 250,000 accounts in the fourth quarter, beating analysts’ forecasts of 125,000 to 220,000 new subscribers. It ended 2002 with 14.8 million customers.

Bloomberg News was used in compiling to this report.