What to look for when Sprint reports Q1 earnings

Sprint Corporation (NYSE: S) is scheduled to report its earnings results for the first quarter of 2019 on Friday before the market opens. The results will be hurt by non-cash good impairment charge and higher expenses. Investors will be looking out for the management’s comments about the progress of the merger with T-Mobile (NASDAQ: TMUS).

The aggressive promotional activities could continue to negatively affect Sprint’s ability to retain subscribers and could lead to a further increase in its churn rates if not able to provide an attractive product, price and service mix, which could adversely affect its operating results.

The company expects to continue to incur expenses such as the reimbursement of subscriber termination fees and other subscriber acquisition and retention expenses to attract and retain subscribers. Subscriber losses and a high churn rate could adversely impact Sprint’s business, financial condition, and results of operations as they result in lost revenues and cash flow.

On July 26, the Department of Justice approved a merger that would require both T-Mobile and Sprint to spin-off significant assets to Dish Network (NASDAQ: DISH). The deal was approved after Dish agreed with the carriers to buy Boost Mobile, Virgin Mobile, Sprint’s prepaid business, and certain spectrum assets.

The Dish’s purchase of divested assets would make the cable giant a fourth wireless carrier in the US. Meanwhile, the deal faces one last hurdle as a group of state attorneys general look to block the merger in court. They believed the merger could hinder competition and cost consumers more than $4.5 billion.

Analysts expect the company to report a loss of $0.04 per share on revenue of $8.06 billion for the first quarter. In comparison, during the previous year quarter, Sprint posted a profit of $0.04 per share on revenue of $8.12 billion. The company has missed analysts’ expectations twice in the past four quarters.

Also read: Will 5G technology replace 4G LTE

For the fourth quarter, Sprint slipped to a loss from a profit last year, due to a $2 billion preliminary non-cash goodwill impairment charge. Revenue rose by 4% year-over-year driven by higher equipment sales and rentals. The company has faced continued challenges that put pressure on its service revenue and retail customer growth.

As of March 31, 2019, the company’s debt was $40.3 billion. The company’s high debt levels and debt service requirements are significant in relation to its declining revenues and negative free cash flow, which may lower its ability to respond to competition and economic trends in the industry. This may have an adverse effect on its business by reducing cash available for operations and further place Sprint at a competitive disadvantage compared to its competitors.

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