Adtran Falls Short in Q3
Its preliminary figures for the three months ending September 30 show revenues of about $115 million, for earnings per share (EPS) of 23 or 24 cents. That contrasts with average analyst expectations of $123.3 million in revenues and EPS of 27 cents. The numbers are also down compared with its previous quarter, when Adtran recorded an EPS of 26 cents on revenues of $120.6 million (see Adtran Sales Rise in Q2).
Although the preliminary numbers weren't released until well after the markets closed, the vendor's share price dipped Tuesday on anticipation of negative news, falling 68 cents, nearly 3 percent, to close at $23.49.
The company's valuation shrank further in early trading this morning, as it fell $3.24 (13.79 percent) to $20.25 [ed. note: and still falling, as of this writing]. This is a new 12-month low for the stock, and some way off its 12-month high of $38.
It's not like the warning signals weren't there. Adtran's management had been cautious about the second half of the year when it announced its second-quarter results in July (see Shares Slump as Adtran Hits ). However, the latest numbers are even lower than the Adtran board had expected. In last night's prepared statement, chairman and CEO Mark Smith stated that the revenues were "not up to our expectations due to unanticipated light bookings during the latter half of September. The weakness centered around integrated access devices and DSLAMs."
But Smith believes this slackness may be a temporary blip. "Customers for remote-terminal and outside-plant DSLAMs were waiting for availability of our new, higher-density ADSL2+ products. Our ADSL2+ products began shipping in volume the last week of the quarter."
Such products are set to be in demand in the near term as carriers look to capitalize on the broadband boom and seek ways to deliver the sort of access capacity that can help deliver bandwidth-hungry services such as video and interactive gaming (see Carriers Prep DSL Wave Part II ).
If Smith is right about the pent-up demand, that could herald a more solid fourth quarter and start to 2005, which might also be sweetened by additional business from one of its main customers, SBC Communications Inc. (NYSE: SBC) (see Analyst Sees Adtran SBC Win and SBC RFP Refreshes Remotes).
Analysts at J.P. Morgan Chase & Co. agree that SBC and fellow RBOC Verizon Communications Inc. (NYSE: VZ) are likely to drive new revenues for Adtran in the next two to three years (see Verizon Wrangles Remote DSLAMs).
However, the J.P. Morgan team warned in a research note that investors should not expect the same levels of growth that Adtran has experienced in the past few years. Adtran is expecting full-year revenues of $475 million to $485 million, compared with $397 million in 2003 and $346 million in 2002.
None of this has stopped Jeffries & Co. analyst George Notter from maintaining a Buy rating on the stock. While he has reduced his projections for both 2004 and 2005 Adtran sales – from $487 million and $555 million to $468 million and $520 million, respectively – and EPS – from $1.08 and $1.20 to $1.00 and $1.10, respectively – Notter sees the first quarter of 2005 as an "inflection point," given the expected business from SBC and Verizon.
He also believes there's an opportunity for new revenues from BellSouth Corp. (NYSE: BLS) as it develops its fiber-to-the-neighborhood plans. "We recommend that investors take advantage of current weakness in the name," states Notter in a research note issued today, giving a price target of $28.50.
Adtran's full third-quarter results will be released on October 12.
— Ray Le Maistre, International News Editor, Light Reading