ADT Misses on Q1 Earnings - Analyst Blog

By Zacks Equity Research,

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The ADT Corporation 's ( ADT ) first quarter fiscal 2014 GAAP net income declined to $77 million or 39 cents per share from $105 million or 44 cents per share in the year-ago quarter. The year-over-year decrease in earnings is primarily due to high operating costs and interest expense during the reported quarter associated with being a standalone public company.  

Excluding non-recurring items, adjusted net income stood at $86 million or 43 cents per share, versus $103 million or 44 cents per share in the year-ago quarter. The quarterly adjusted earnings poorly missed the Zacks Consensus Estimate of 49 cents.

Quarter Details

Revenues for the quarter increased 3.7% year over year to $839 million. However, it failed to meet the Zacks Consensus Estimate of $850 million. Recurring revenues of $775 million, which accounted for 92% of total revenue in the reported quarter, was up 4.2% compared with the year-earlier period. Recurring revenue growth was largely driven by an increase in average revenue per customer, which was up 3.1% year over year to $40.63. ADT closed the quarter with 6.5 million customer accounts, up 0.7% from last year.

Earnings before Interest, Taxes, Depreciation and Amortization (EBITDA) were $411 million in the reported quarter compared with $417 million in the prior-year period. EBITDA before special items improved to $426 million in the reported quarter from $417 million in the year-ago quarter.

In its earnings release, ADT provided key insights in some of the initiatives it has taken to accelerate growth, improve cost efficiencies, and optimize capital structure. In order to capture a greater pie in the market, the company invested heavily in its ADT Pulse platform and launched several new products.

During the quarter, ADT aimed to reduce customer attrition by initiating tighter credit screening policies, implementing resale efforts and customer loyalty programs. The company also expanded its dealer network and forged partnership with companies like Ford Motor Co. ( F ) to extend its footprint in security and home automation.

In order to reduce subscriber acquisition costs, ADT implemented new technology and installation procedures and optimized lead management, sales conversion and marketing activities across all channels.

Balance Sheet and Cash Flow

Cash and cash equivalents at quarter end were $80 million, while long-term debt aggregated $4,434 million. Cash from operating activities totaled $335 million for the reported quarter compared with $409 million in the prior-year period.

The company authorized a 60% increase in the company's quarterly dividend to 20 cents per share, up from 12.5 cents per share. ADT repurchased 26 million of its shares for $1.2 billion during the reported quarter under its $3 billion share repurchase program. Since its inception, the company has repurchased 54 million shares for $2.4 billion, which has resulted in a 20% reduction to outstanding shares.

Moving Forward

ADT shares fell in pre-market trading as investors probably expected it to comfortably beat the revenue and earnings estimates. The earnings release also lacked an update on the fiscal outlook of the company.

ADT currently has a Zacks Rank #3 (Hold). Stocks that look promising and are worth a look now in the industry include Nielsen Holdings N.V. ( NLSN ) and McGraw Hill Financial, Inc. ( MHFI ), both carrying a Zacks Rank #2 (Buy).

ADT CORP (ADT): Free Stock Analysis Report

FORD MOTOR CO (F): Free Stock Analysis Report

MCGRAW HILL FIN (MHFI): Free Stock Analysis Report

NIELSEN HOLDNGS (NLSN): Free Stock Analysis Report

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Zacks Investment Research

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Business , Earnings , Stocks
Referenced Stocks: ADT , F , MHFI , NLSN

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