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Sprint’s Wireless EBITDA Declined in Fiscal 3Q14

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Sprint’s wireless profitability

Earlier in this series, we looked at the various contributors to Sprint’s (S) wireless division’s revenue and costs in fiscal 3Q14. Now, we’ll look at the division’s profitability during the quarter.

Sprint reported an operating loss of ~$2.2 billion for its wireless division in fiscal 3Q14. One of the primary reasons for the operating loss was the ~$1.9 billion impairment. The company took the impairment on its brand name during the quarter.

Sprint’s adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) for the wireless division decreased moderately by ~1.8% YoY (year-over-year) in fiscal 3Q14. This was despite a much lower ~0.6% YoY decline in the division’s net operating revenue.

The division’s adjusted EBITDA margin increased from ~14.4% in fiscal 3Q13 to ~15.4% in fiscal 3Q14. The YoY increase in the margin was mainly due to an ~15% decrease in the cost of service. We discussed the cost of service in the Part 12 of the series.

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Sprint’s wireless EBITDA declined sequentially

The wireless division’s adjusted EBITDA declined ~24.5% sequentially during the quarter. This was largely due to an ~4.5% contraction in the wireless division’s adjusted EBITDA margin sequentially. An ~6.4% sequential increase in the wireless segment’s operating revenue couldn’t mitigate margin pressure on the division’s adjusted earnings during the quarter.

The adjusted EBITDA margin declined sequentially mainly due to the high cost of product and SG&A (selling, general, and administrative expenses) during fiscal 3Q14. Sprint’s cost of product rose ~24.5%. SG&A expenses grew ~15.7% sequentially due to the high volume of sales during the quarter. Earlier in this series, we mentioned how the quarter was marked by high smartphone sales—like Apple’s (AAPL) iPhone.

If you want to get diversified exposure to Sprint, you can invest in the iShares U.S. Telecommunications ETF (IYZ). IYZ held ~4.6% in the telecom on March 5, 2015. The ETF also held ~24.5% in Verizon (VZ) and AT&T (T)—the largest US telecoms.

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