11:54 NEW YORK (Dow Jones)--Shares of Nextel Communications Inc. (NXTL) plunged to a new 52-week low after the company reported third-quarter results in which domestic operating cash flow was positive for the first time, but customer growth was slower than expected.
For the first time, the McLean, Va., wireless communications company reported
a smaller number of new U.S. customers than it had the previous quarter. It
also said during a conference call that fourth-quarter growth could be slower
still.
Investors were surprised and disappointed by the domestic subscriber numbers
and by higher than expected capital spending forecasts for 1999, analysts said.
The bad news eclipsed several strong elements in the company's earnings,
including rising customer bills, stable customer turnover and positive
operating cash flow in its U.S. business.
"In this market people are focused on the negative," said Bear, Stearns & Co.
analyst David Freedman.
The earnings report drove Nextel shares to a 52-week low of 15 3/8 earlier,
surpassing the previous 52-week low of 15 5/8 that was reached Oct. 8. Recently
shares were down 3 5/8, or 18.4% to 16 1/16 on Nasdaq volume of 5 million,
compared to average daily volume of 2.9 million.
The company reported a net loss of $401.9 million, or $1.56 a share,
including a non-cash charge of $46.9 million, or 17 cents, from losses on an
interest rate hedge. In the year-ago period, the company lost $306.1 million,
or $1.26 a year ago with fewer shares outstanding.
Excluding the charge, the company lost $1.39. The consensus of analysts
surveyed by First Call Corp. was that the company would lose $1.36.
Revenue more than doubled to $506.6 million from $207.2 million a year ago.
The net loss from domestic operations was $286.3 million, or $1.01 per share.
Domestic operating cash flow was $7.2 million. Some analysts expected positive
domestic operating cash flow in the third quarter, while others thought the
change was more likely in the fourth quarter.
Nextel added 375,300 U.S. subscribers in the third quarter, down from more
than 400,000 in the second quarter. Company officials said in the "best case"
fourth quarter subscriber growth would be flat with the third quarter. It could
dip, they said.
The company said it expects to add 350,000 to 400,000 domestic subscribers a
quarter for the next few quarters.
"Investors are proving to be subscriber-sensitive above all else," said BT
Alex Brown Inc. analyst Jeffrey Hines.
Nextel and AT&T Corp. (T) are likely to end up with the industry's strongest
third quarter subcriber growth, Hines said. AT&T, the largest wireless carrier,
serves both consumers and businesses, while Nextel focuses exclusively on the
business market.
Hines said investors shouldn't have been terribly surprised to see subscriber
growth slip because the company introduced a much-anticipated new phone late in
the quarter and customers seemed to hold off purchases while they waited for
the new model.
When the new, smaller phones came on the market, the company didn't have
enough of them to meet demand, which also reined in sales.
"That problem has been solved," Chief Financial Officer Steve Schindler told
Dow Jones in an interview after the earnings release.
Schindler attributed the shift to positive U.S. operating cash flow to a
combination of slower subscriber growth, which reduces sales costs, overall
cost-cutting efforts, stability in customer turnover and strong growth overall.
It is too early to tell what adjustments analysts will make to their fourth
quarter and 1999 earnings projections, Schindler said, but the company expects
results to be generally in line with forecasts.
(MORE) DOW JONES NEWS 10-15-98
11:54 AM
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