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Why Sprint’s Cost-Cutting Strategy Is Paying Off

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Sep. 1 2017, Updated 9:08 a.m. ET

Cost cutting to combat losses

Although by customers, Sprint (S) is still the fourth-largest carrier in the US wireless industry, its important cost-cutting initiatives and the shift away from the traditional subsidy model have contributed to its turnaround efforts. In fiscal 1Q17, which ended in June 2017, Sprint realized ~$370 million in net cost reductions. The company had eliminated $2.1 billion in costs during fiscal 2016. Sprint’s management stated that over the past nine quarters, Sprint reduced operating expenses by nearly $4.0 billion. These ongoing reductions in costs are particularly important for Sprint, as the carrier interrupted its streak of quarterly losses by delivering a profit in fiscal 1Q17 for the first time in three years.

In fiscal 1Q17, Sprint reported net profit of $206 million as compared to a net loss of $302 million in fiscal 1Q16. The company reported earnings per share (or EPS) of $0.05, signaling a significant improvement from an EPS loss of $0.08 a year earlier.

The company anticipates it will eliminate an additional $1.3 billion to $1.5 billion from its operating expenses during fiscal 2017.

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Highest EBITDA in a decade

Furthermore, Sprint reported adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) of $2.9 billion in fiscal 1Q17, its highest in a decade. The profit in the recent quarter came on revenue of $8.2 billion, which was a ~1.8% increase YoY (year-over-year). Also, Sprint showed no signs of slowing down with 88,000 postpaid phone net customer additions in fiscal 1Q17, which marked the eighth consecutive quarter of net additions. Meanwhile, Verizon (VZ) and T-Mobile (TMUS) added 358,000 and 786,000 postpaid phone subscribers, respectively, in 2Q17, whereas AT&T (T) lost 89,000 postpaid phone customers during the same period.

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