Sprint FON profits off 34.5%

Sprint’s wireline unit reported lower operating profits for the second quarter, as long-distance margins continued to erode and spending on the company’s ION and fixed-wireless projects ate into earnings.

Sprint posted net income, which excludes one-time items, dropped to $290 million, or 33¢ per share, from $443 million, or 50¢ per share, in the year-ago period. Those figures exclude $105 million of charges related to Sprint’s failed merger with WorldCom and a $45 million gain on the sale of an independent directory publishing operation.

According to surveys by First Call/Thomson Financial, equities analysts had been expecting Sprint to earn 28¢ per share.

While Sprint’s consolidated revenues (which includes Sprint PCS) increased 10% to 46.42 billion in the quarter, Sprint FON group revenues declined about 3%, to $4.31 billion, from $4.45 billion. Overall margins declined to 11.3%, compared with 17% one year ago.

Sprint’s local-services division grew revenues 3% in the quarter, but the carrier’s global markets group saw revenues decline almost 5% because of lower long-distance revenues and reduced sales of network management services and customer premises equipment. Those declines were offset partially by growth in Internet Protocol and data services, Sprint said.

“Business voice revenues continue to be impacted by aggressive market pricing,” said a statement by Sprint. Consumer voice revenues declined about 9% from the year-ago quarter.

The global markets group also suffered an operating loss due to lower long distance margins, increased bad debt expense and “incremental dilution” from Sprint ION, broadband fixed wireless and “other growth inititiatives.” Bankruptcies among customers of Sprint’s wholesale unit have dampened growth of wholesale revenue, said Len Lauer, president of the global markets group.

Sprint did not provide any new information on the ION project, which has been delayed due to technical difficulties in implementing a voice-over-packet architecture. Sprint said it will update the ION project’s progress in the late summer or early autumn.

In the current quarter, Sprint projected profits approaching 30¢ per share, while revenue is expected to drop by 1%-2% compared to 2000. According to First Call, on average, analysts had projected Sprint would earn 26¢ per share.

Capital expenditures for the full year will be about $5.9 billion, but Sprint said that amount could be reduced if it scales back expansion of ION or its broadband fixed-wireless initiative.

Separately, Sprint announced that it has filed a shelf registration statement with the Securities and Exchange Commission to sell $4 billion in debt and stock. The proceeds would be used to repay debt and make new capital investments, as well as for general corporate purposes.