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Sprint and Possible EBITDA Growth in Fiscal 4Q16

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Sprint’s EBITDA growth in fiscal 4Q16

In the previous part of this series, we looked at Sprint’s (S) wireless service revenue growth and what we can expect in fiscal 4Q16 (ended March 31, 2017). Now let’s take a look at the company’s expected adjusted EBITDA (earnings before interest, tax, depreciation, and amortization).

Sprint’s EBITDA margin could be impacted by elevated competitive intensity in the industry in fiscal 4Q16. Wall Street expects Sprint’s total adjusted EBITDA to rise ~24.2% YoY (year-over-year) to ~$2.7 billion in fiscal 4Q16.

In fiscal 3Q16, Sprint’s adjusted EBITDA was ~$2.5 billion compared to ~$1.9 billion in fiscal 3Q15. Its adjusted EBITDA margin rose 38.7% in fiscal 3Q16 from 28.4% in fiscal 3Q15.

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The main reason for the rise was cost reductions and the shift toward handset leasing. In fiscal 2016 year-to-date, Sprint has realized $1.6 billion of cost reductions, of which ~$500.0 million was realized in fiscal 3Q16. As a result, Sprint remains on track to save $2.0 billion or more in costs for fiscal 2016 and has plans for further reductions in fiscal 2017 and beyond. It eliminated $1.3 billion in costs in fiscal 2015.

Sprint is using a combination of head count reduction and expense curtailment as it presses toward sustainable profitability. The carrier cut 2,500 jobs in fiscal 2015. Growing its top line is supporting the company’s path to profitability.

Peer comparison for EBITDA margin

According to company filings, in calendar 4Q16, Verizon’s (VZ) and AT&T’s (T) adjusted EBITDA margins were 35.5% and 35.7%, respectively. T-Mobile’s (TMUS) adjusted EBITDA margin was 35.0%. Sprint is enjoying higher margins than competitors due to cost savings and higher equipment contribution.

In the next part of this series, we’ll look at Sprint’s postpaid phone subscriber net additions.

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