CommScope shares plummet on earnings miss

CommScope shares dropped 40% in mid-day trading Monday after the company said it would miss third quarter sales targets because of low order rates, high customer product inventories and sluggish service provider capital spending.

In preliminary Q3 2023 results announced Monday, CommScope said it expects to report aggregate sales of $1.60 billion and sales of $1.35 billion at its "core" business, which excludes the Home Networks unit being sold to Vantiva. The company's anticipated aggregate sales for Q3 came in well below the $1.99 billion expected by analysts.

CommScope also expects to post a GAAP net loss of $829 million, reflecting an $895 million non-cash asset impairment from its Access Network Solutions (ANS) and Home Networks segments.

The company lowered guidance for full-year 2023 core adjusted EBITDA to a range of $1 billion to $1.05 billion, off from the $1.17 billion expected by analysts. CommScope's shares were down 97 cents (-40.28%) to $1.44 each in mid-day trading Monday.

Update: CommScope shares closed Monday down 94 cents (-38.84%) to $1.48 each.

CommScope said net sales remain sluggish due to a mix of reasons including "low order rates driven by customers continuing to hold higher than required inventories, uncertain macroeconomic environment and slower service provider network capital expenditure spending."

Related:Comcast hits symmetrical 4-Gig speeds with CommScope's DOCSIS 4.0 FDX amps

'Softer demand environment' to continue

The company attributed the Q3 miss largely to sluggishness at its Connectivity and Cable Solutions (CCS) and Outdoor Wireless Networks (OWN) segments but said it's also seeing weakness at ANS, the unit that supplies access network gear and technologies to cable operators.

At ANS, "customers are managing higher than required inventory levels and experiencing project delays in some of their upgrade plans," CommScope CEO Chuck Treadway said in a statement. "We believe this softer demand environment will continue as we move into the first half of 2024, impacting both revenue and profitability."

CommScope, which is progressing in its development of an FDX amplifier for Comcast and just notched its first customer commitment for a virtual cable modem termination system (vCMTS), didn't elaborate on specific projects impacting ANS. Last week, Charter Communications execs said the operator might push out completion of its hybrid fiber/coax (HFC) upgrades by a few months as it prioritizes spending on fiber network expansions in rural areas.

CommScope's Q3 miss comes roughly three months after Harmonic lowered its Q3 guidance due largely to sales delays across both its broadband and video business segments as well as some operator customers absorbing existing inventories. Harmonic is scheduled to post its Q3 results later today. Three other publicly traded companies with exposure to cable operator spending will report their latest results in the coming days: Applied Optoelectronics (November 9), Casa Systems (November 7) and Vecima Networks (November 9).

Related:CommScope exploring sale of assets, including access network unit, to drive down debt – sources

Treadway said CommScope is working on efficiencies and "cost actions" that will help the company when demand for its products returns. He also believes the company remains well positioned to benefit from various government-funded broadband network programs.

CommScope's Q3 warning arrives amid recent speculation that the company is exploring a sale of certain assets, including Ruckus Wireless and its ANS unit, to help pay down a $9 billion debt load. CommScope hasn't identified those units specifically as potential sales targets but said it has "identified several opportunities to optimize our portfolio."

Raymond James kept its "underperform" rating on CommScope following today's warning but lowered its 2023 sales estimate to $7.13 million from $7.89 billion and 2023 earnings per share to $0.86 from $1.16. The firm also lowered its 2024 sales forecast to $6.85 billion from $8.13 billion.

Related:Vantiva makes play for CommScope's set-top and gateway unit