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Sprint’s Cost-Cutting Initiative: Looking in the Buckets

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Sprint’s cost-cutting plans

Beginning in fiscal 2016, Sprint (S) has been undergoing a cost-cutting initiative that is expected to save at least $2 billion per year. According to the company, it had achieved ~$250 million of savings in operating costs in fiscal 4Q15 (calendar 1Q16).

In the recent J.P. Morgan Global Technology, Media, and Telecom Conference, Tarek A. Robbiati, Sprint’s CFO, discussed the proportion of these planned savings from the company’s various cost buckets.

Robbiati noted, “We are targeting for fiscal year 2016 to exit with $2 billion of run rate savings. 60% to 70% of that $2 billion run rate saving would come from selling, general and admin expenses. 10% to 20% would come from cost of services and the rest would come from cost of products.

“It’s really important that we keep customer investment going and most fundamentally, it’s really important that we take the costs out on the hard cost of SG&A and cost of services and that’s what we’re doing.”

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Sprint’s losses

In a saturated US wireless market, the ability to manage costs is particularly important for Sprint. Since fiscal 2Q14 (calendar 3Q14), the company has witnessed losses in the successive quarters. The company had a GAAP (generally accepted accounting principles) net loss of ~$550 million in fiscal 4Q15.

The company’s revenue continued to shrink during the quarter. Sprint’s revenue decreased by ~2.5% YoY to reach ~$8.1 billion in fiscal 4Q15. In fiscal 3Q15, this stream had declined by ~9.7% YoY.

For diversified exposure to select telecom companies in the US, you may consider investing in the SPDR S&P 500 ETF (SPY). This ETF held ~2.7% in AT&T (T), Verizon (VZ), CenturyLink (CTL), Frontier Communications (FTR), and Level 3 Communications (LVLT) at the end of April 2016.

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