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Has Sprint’s Cost-Cutting Proved Beneficial?

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Cost-cutting to combat losses

Although Sprint (S) continues to be the fourth-largest telecom (telecommunications) player by customers in the US (SPY) wireless market, its cost-cutting initiatives and the shift away from the traditional subsidy model have contributed to its turnaround efforts. During fiscal 2Q17 (ended September 2017), the company realized ~$400 million in net cost reductions. It eliminated $2.1 billion in costs in fiscal 2016. These reductions in expenses are particularly significant for Sprint, considering it continues to generate losses on an adjusted basis.

In fiscal 2Q17, Sprint reported an EPS (earnings per share) loss of $0.01, signaling a significant improvement from an EPS loss of $0.04 the previous year.

During the Wells Fargo Media & Telecom Conference on November 8, 2017, Marcelo Claure, Sprint’s CEO (chief executive officer), spoke about the company’s cost-cutting initiatives. He said that Sprint has lowered its cost base by ~$5 billion and that this year, it expects an additional $1.3 billion–$1.5 billion in net cost reductions. He added, “But it’s really not $1.3 billion to $1.5 billion. What we actually take out is in excess of $2 billion because we’re reinvesting in everything, $800 million to $1 billion in new stores, new dealers, systems and other things. So we are investing money. It’s not just a cost-cutting, it’s a transformation story.”

Highest quarterly EBITDA for a fiscal second quarter

In fiscal 2Q17, Sprint reported adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) of $2.7 billion, its highest quarterly adjusted EBITDA for a fiscal second quarter in a decade. Additionally, Sprint showed no signs of slowing down, with 279,000 postpaid phone net subscriber additions in fiscal 2Q17, which marked the ninth consecutive quarter of net additions. Verizon (VZ) and T-Mobile (TMUS) gained 274,000 and 595,000 postpaid phone net customers, respectively, in 3Q17, whereas AT&T (T) lost 97,000 postpaid phone customers during the same period.

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