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Nextel Posts Its First Profit as Sales Climb

Telecom: The company surprises investors with its second-quarter report and boosts share prices for wireless carriers.


Wireless provider Nextel Communications Inc. provided a rare dose of good news for the telecommunications industry Tuesday, surprising investors with its first quarterly profit and a higher full-year earnings estimate.

Nextel's second-quarter report sparked a 31% jump in the company's stock and elevated wireless stocks in general, boosting the shares of AT&T Wireless Services Inc. and Leap Wireless Inc.

On Nasdaq, Nextel shares rose $1.53 to $6.53, and Leap was up 37 cents to $1.50. Shares of AT&T Wireless rose 20 cents to $6.20 on the New York Stock Exchange.

Reston, Va.-based Nextel, the nation's fifth-largest wireless carrier, said sales rose 25% with the addition of 471,000 customers to its network, bringing the total to 9.64 million in the second quarter.

"I was surprised ....The numbers look great," said Zach Wagner, wireless analyst at Edward Jones. "I think they've probably stolen a lot of customers from the other carriers."

Nationwide, the number of mobile phone customers has grown so much that adding customers has gotten much tougher for wireless companies in the last few quarters.

Analysts said it is unclear whether Nextel's strong customer growth will be mirrored at other national carriers when they report their quarterly numbers over the next few weeks.

Nextel has long been the smallest of the nationwide wireless carriers, but the 15-year-old company has a base of customers attracted by Nextel's focus on business users and its unique walkie-talkie capability. That feature, called Direct Connect, is particularly popular with construction crews, sales employees and others.

Nextel reported net income of $123 million for the quarter, a sharp turnaround from a loss of $369 million for the same quarter in 2001. Sales rose to $2.15 billion from $1.72 billion.

After accounting for a gain on redeemed preferred stock and the payment of preferred dividends, Nextel posted net income attributable to common stockholders of $325 million, or 37 cents a share, compared with a loss of $426 million, or 56 cents, for the same period last year.

Company officials said they expect 2002 operating cash flow--earnings before interest, taxes, depreciation and amortization--of at least $3 billion, up from an earlier forecast of $2.5 billion.

Nextel, which is controlled by billionaire Craig McCaw, reported progress in reducing its domestic long-term debt, which totaled more than $13 billion on June 30.

During the quarter, Nextel exchanged $1.1 billion in debt and preferred stock for 61 million shares of common stock and $295 million in cash. It said it would spend $205 million to buy back $400 million of its debt. The moves will save Nextel about $2.5 billion over nine years in interest, principal and dividend payments.

"They've always had a very good business model," said Wagner of Edward James, who doesn't own Nextel shares and rates them as "sell." "But still, they've got a wall of debt coming due in 2007, and it's going to be a challenge."

For now, Wall Street seems content to ride the bit of favorable news that Nextel provided Tuesday.

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