When Marcelo Claure took the top job at Sprint Corp two months ago, he faced an uphill climb in turning around the No. 3 U.S. cellular provider. On Monday, it became clear quite how steep that road to recovery will be.
The Bolivian entrepreneur, who was installed as CEO after the collapse of merger talks with T-Mobile US Inc, already faced the task of stemming growing subscriber defections as the company seeks to upgrade its subpar network.
He now will have to reckon with a worsening financial backdrop, as Sprint cut its full-year 2014 earnings forecast to between $5.8 billion and $5.9 billion from $6.7 billion to $6.9 billion.
The company also said it had lost 500,000 postpaid subscribers on a net basis even as rivals like T-Mobile were adding them.
Sprint responded by pledging to reduce annual costs by $1.5 billion and announcing 2,000 additional job cuts, but the damage was done. The results were bad enough that they triggered a profit warning at Japan’s Softbank, its parent company.
The company also announced it will delay a nationwide roll out of its ultra high speed network and will instead focus on deploying it in a handful of cities.
“If you look at what is going on in our network it is getting substantially better. We have gone through a major rip and replace of the entire network. It is like starting fresh,” Claure told Reuters in an interview on Monday.
Sprint’s stock plummeted 18 percent on Tuesday, bringing the shares to their lowest level since Softbank, controlled by billionaire Masayoshi Son, acquired most of the cellular operator in July 2013.
“The results yesterday poured a bucket of cold water on the idea that margins are going to improve any time soon,” said Craig Moffett, analyst at Moffett Nathanson in New York.
Sprint has faced growing challenges since its bid for T-Mobile US fell apart after U.S. regulators made their opposition to the deal known.
“I think Masayoshi Son underestimated the size of the problem. It took him by surprise,” said Roger Entner, lead analyst at Recon Analytics.
The company has slashed prices and doubled data offerings in an attempt to compete with rivals AT&T, Verizon and Sprint, but its average monthly revenue per contract subscriber of over $60 is much higher than fourth largest carrier, T-Mobile at under $50. The company will have to cut prices even further if it wants to compete, analysts said.
“Overall investors probably anticipated a little bit more from the new management team despite the fact that it is relatively early,” said S&P Capital IQ analyst Angelo Zino.
“When you look at the competitive environment out there right now, it looks like there is not much hope for the company in the near to medium term,” he said.