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Sprint moves into the black amid M&A chatter

Through a combination of cost cutting and new customers, Sprint Corp. returned to profitability for the first time in three years.

The company on Aug. 1 reported fiscal first-quarter net income of $206 million, or 5 cents per share, compared to a net loss of $302 million, or a loss of 8 cents per share, in the prior-year period. The S&P Capital IQ consensus estimate for the period was a loss per share of 1 cent on a GAAP basis and a loss per share of 5 cents on a normalized basis.

In part, the profit was possible due to Sprint's ongoing cost-reduction program. The company delivered nearly $370 million of combined year-over-year reductions in cost of services and selling, general and administrative, or SG&A, expenses in the quarter, bringing the total reduction during the last nine quarters to nearly $4 billion.

Looking forward, Sprint expects an additional $1.3 billion to $1.5 billion of year-over-year net reductions in cost of services and SG&A expenses in fiscal year 2017.

While Sprint CEO Marcelo Claure sought to focus on the positive bottom-line result during an Aug. 1 earnings conference call, analysts on the call wanted an update on the company's M&A negotiations. Sprint's parent company, SoftBank Group Corp., has been in negotiations with Charter Communications Inc., proposing a merger under which Charter and Sprint would combine to create a new publicly traded company controlled by SoftBank.

Charter was quick to publicly rebuff the deal, saying it had "no interest in acquiring Sprint." During the call, Claure said he was "a bit surprised" by Charter's public statement, noting Sprint never asked Charter to buy it.

"It was part of the bigger play that has been reported, but I was a bit surprised to see an announcement coming like that from Charter," the CEO said.

Beyond Charter, Claure noted that Sprint has "plenty of options" and has engaged in "discussions with a lot of different parties," some of whom are in the wireless industry and some of whom are outside of it.

"At this point in time, we continue discussions with different parties. And I can tell you that we are incredibly encouraged, and I think an announcement will be coming in the near future," he said.

Net operating revenues for the quarter ended June 30 were $8.16 billion, up 1.8% year over year from $8.01 billion. Total net additions were 61,000 in the quarter, including postpaid net losses of 39,000, prepaid net additions of 35,000, and wholesale and affiliate net additions of 65,000.

Looking forward, Sprint increased the low end of its previous adjusted EBITDA guidance to $10.8 billion to $11.2 billion for fiscal year 2017. The previous expectation was $10.7 billion to $11.2 billion. The company also increased the low end of its previous operating income expectations and now expects operating income of $2.1 billion to $2.5 billion. The previous expectation was $2 billion to $2.5 billion.

The company continues to expect cash capital expenditures, excluding devices leased through indirect channels, of $3.5 billion to $4 billion.