However, executives gave modest guidance going forward, indicating growth may cool. This gave investors reason to sell on the news, pushing Adtran's stock down $3.73 (12.57%) to $25.94 in early afternoon trading.
The company reported earnings of 26 cents a share on revenues of $120.6 million, compared to year-ago earnings of 15 cents a share on revenues of $90.4 million. Its largest customers continue to be SBC Communications Inc. (NYSE: SBC), Sprint Corp. (NYSE: FON), and Verizon Communications Inc. (NYSE: VZ) -- three of the largest U.S. carriers that also happen to be aggressively trying to catch up to cable companies in offering broadband services.
Adtran's earnings-per-share results were dead-on with what analysts were anticipating for the second quarter. Its revenues were $300,000 better than analysts anticipated, according to Reuters Research.
Adtran's net income grew to $21.5 million for the quarter from $12.4 million a year ago. Its gross margins also grew -- climbing 57.8 percent from 55 percent in the second quarter of 2003. Adtran ended the quarter with cash and investments of $338 million, after repurchasing $12.4 million in common stock.
CEO Mark Smith says that DSLAMs will continue to lead new products in revenues, thanks to continuing demand from the customer base.
But are the sales sustainable?
"Heavens, yes," Smith declares. "We have a number of contracts in the middle of negotiations… and that volume won't start for quite some time."
Smith wouldn't comment on specific deals, but it's widely speculated that Verizon and SBC are both close to awarding Adtran some deals surrounding its remote, or outside plant, DSLAMs. At least in SBC's case, the remote DSLAM is seen as a key element to completing its fiber-to-the-node initiative (see SBC Plan: Upside for Adtran?).
Alltel Corp. (NYSE: AT), Qwest Communications International Inc. (NYSE: Q), and SBC, notably, are a few Adtran DSLAM customers that have expanded their purchasing plans since initial deployments began, Smith says.
What's harder to predict is when the carrier interest in DSLAMs will translate to equipment sales for Adtran. Prior to the conference call, a consensus of analysts surveyed by Reuters Research predicted that Adtran would earn $1.06 a share on revenues of $489.6 million for the full year 2004.
The company's actual guidance was more conservative. Smith says Adtran will see full year 2004 revenues in the range of $475 million to $485 million with earnings per share in the range of $1.04 to $1.06.
Even if it slows a bit, Adtran's growth looks likely to continue in the near term, and that'll likely dominate water cooler chit-chat for a little while -- especially since Alabama doesn't play Auburn until November 20.
— Phil Harvey, News Editor, Light Reading
For more on this topic, check out:
- The Light Reading Insider report:
Broadband Access: Last Mile, Last Chance?
- The Heavy Reading report:
Next-Generation DSL Equipment: The Path to Profitability
For further education, visit the archives of related Light Reading Webinars: