Sprint FON first-quarter net income declines 9 percent

Sprint FON Group posted net income for first quarter 2002 of $286 million--32 cents per share--a decline of 9% from the $316 million posted in first quarter 2001. However, the performance beat the 30 cents per share consensus estimate of analysts polled by Thompson Financial/First Call.

Operating income for the quarter totaled $460 million, a 14% decrease from the $532 million posted in the same quarter one year ago, while net operating revenues for the quarter were $4.03 billion, an 8% decline year over year.

Earnings before interest, taxes, depreciation and amortization (EBITDA) for the quarter were $1.11 billion, essentially flat compared with the $1.12 billion posted in the same quarter a year ago. Capital expenditures for the quarter totaled $543 million. Long-term debt and capital lease obligations at the end of the quarter stood at $5.02 billion, an increase of $1.77 billion compared with fourth quarter 2001.

The FON Group’s local telecommunications division registered a 10% increase in operating income, to $481 million from the $438 million posted in the same quarter a year ago. The division's net operating revenues for the quarter were $1.55 billion, equal to first quarter 2001. EBITDA increased by 7% year over year to $767 million. Voice-grade equivalent lines grew about 12% year over year. However, access lines decreased by 1.4% during the same period.

The global markets division posted an operating loss of $69 million for the quarter, a significant decline from the $170 million operating income posted in first quarter 2001. Net operating revenues decreased 9% year over year, primarily due to lower long-distance voice revenues, the company said. EBITDA for first quarter 2002 decreased to $288 million from the $443 million registered in the same quarter last year.

Arthur Krause, executive vice president and chief financial officer, said the company was “clearly encouraged” by its first quarter results and would stay with its guidance for the year, despite the “general assumption that the economy will show only modest improvement over the course of the year.”

Krause said the company expects its local division to produce “very low single-digit revenue growth for the full year.” He added that product distribution revenues would likely continue to be “under pressure” until carrier capital spending plans improve, and said the global markets division would see its full year revenues decline at a “low to mid single digit rate.”

Full-year EBITDA is expected to reach $4.6 billion, with FON Group producing about $500 in free cash flow this year, according to Krause. “Accordingly when combined with the cash requirements of PCS, Sprint's total incremental cash requirements for this year are now expected to be approximately $600 million,” he said.