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Sprint warns of shortfall
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November 3, 2000: 1:46 p.m. ET
Profit guidance on low side of forecasts, 2001 to miss expectations
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NEW YORK (CNNfn) - Sprint FON Group joined the ranks of troubled telecommunications companies Friday when it cautioned that 2000 profits will hit the low end of Wall Street forecasts, and said 2001 results will fall short of analyst views.
At its annual investment meeting in New York, Sprint (FON: Research, Estimates) said earnings per share in 2000 are expected to be in the range of $1.80 to $1.90. Analysts polled by First Call had projected an EPS of $1.90 for that period.
 Earnings per share for 2001 are projected to be between $1.65 and $1.75, well below the First Call consensus estimate of $2.10.
For the full year 2000, revenue is forecast to increase 3 percent and in 2001, revenue is expected to grow at a mid-single digit rate. For 2002, revenue is projected to climb at a double-digit rate.
The announcement signals yet another disappointment for Kansas City, Mo.-based Sprint, which in July ended its proposed $117 billion merger with rival WorldCom. The deal, which would have wed the No. 2 and No. 3 U.S. long-distance companies, was tripped by conditions demanded by U.S. regulators.
Sprint still is considered an attractive takeover candidate, thanks to its strong Internet backbone and nationwide PCS wireless unit. Moreover, unlike its competitors WorldCom (WCOM: Research, Estimates) and AT&T (T: Research, Estimates), Sprint is less exposed to the sagging voice long-distance service, which comprises just 44 percent of Sprint's total revenue.
WorldCom Wednesday lowered its earnings and revenue guidance for the fourth quarter and for 2001, and also disclosed plans to split the firm in two, separating its Internet and long distance businesses.
And last week, AT&T announced plans to break its operations into four separate companies amid faltering stock prices.
Analysts said Sprint, whose shares hovered near their lowest levels in almost 2 years Friday, remains an acquisition target.
When the WorldCom deal fell apart, Germany's Deutsche Telekom, which has compiled a $100 billion war chest to capture a sizable share of the U.S. telecommunications market, was considered a possible suitor. In July, Deutsche Telekom agreed to pay $34 billion for mobile phone company VoiceStream Wireless Inc. (VSTR: Research, Estimates).
But at the analysts meeting, Sprint Chairman William Esrey hinted that the company is not for sale, noting that when it comes to the company, "the sum is better than the parts."
Instead, Esrey said, he intends to concentrate on his fastest-growing businesses, data and the Internet, and will boost capital expenditures by 24 percent to $6.2 billion dollars in 2001. Currently, data accounts for up to 30 percent of business and consumer revenue at Sprint, and Esrey sees that figure rising to 50 percent of revenue by 2003.
Investors appeared to pick up on Esrey's optimism Friday, as the stock edged up 12 cents to $22.63 a share, after sliding earlier to a new 52-week low of $21. Volume at midday of 5.8 million shares already was greater than the stock's daily average.
Analyst Rex Mitchell of BB&T Capital Markets told CNNfn that while the company still has several challenges to meet, he believes it will make a strong attempt to grow without a merger partner.
"(Esrey) has said before that he can make it through this crunch, that they will live through this and won't be sold, and I think they can do that," he said.
Ahead of Sprint's announcement, Credit Suisse First Boston analyst Dan Reingold cut fourth-quarter estimates, expecting the company to earn $1.87 a share for 2000, down from prior predictions of $1.90, and cut expectations for next year by 25 cents to $1.85 a share.
Citing WorldCom's disclosure Wednesday that pricing pressures in the long-distance market are more severe than expected, Reingold lowered Sprint to a "hold" rating from a "buy," and said it remains a possible take-out candidate for players such as Qwest Communications International Inc., which he thinks is more likely, or Bell South. 
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