) reported second quarter 2012 adjusted earnings of 38 cents per
share, beating the Zacks Consensus Estimate of 36 cents but
deteriorating from the year-ago adjusted earnings of 59 cents.
Adjusted earnings per share for the quarter exclude the impact
of 5 cents in amortizations and expenses related to the
acquisitions of Nokia Siemens Network's Broadband Access (NSN)
business and Bluesocket. It also excludes impacts of 3 cents
related to stock-based compensation expenses and 3 cents in
bargaining gains related to NSN and Bluesocket acquisitions.
Apart from the negative impacts of the company's expansion
plans, acquisition expenses and increased overseas activities
ADTRAN earnings were also affected by the weak spending pattern of
customers that in turn hurt its overall revenue. Additionally, the
company's traditional products, mainly HDSL, continued to
deteriorate with increased market traction in Ethernet and
The revenue remained flat year over year at $184 million and
missed the Zacks Consensus Estimate of $186 million.
The company's organic growth was primarily driven by its three
main growth products -- Broadband Access, Internetworking and
Optical Access -- representing 84% of the total revenue. The
combined year-over-year growth for these products was 17%.
shot up 38% year over year.
products grew 6%.
Operating income plunged 47.7% year over year to $26.8 million.
Selling, general and administrative expenses and research and
development expenses increased 16.2% and 31.8%, respectively.
ADTRAN exited the second quarter with cash and cash equivalents
of $37 million compared with $36.5 million at the end of first
The company's long-term obligations to pay bonds remained
unchanged from first quarter 2012 at $46.5 million.
The company's board of directors declared a cash dividend of 9
cents per share for the quarter. The dividend will be paid on
August 9 to shareholders of record on July 26.
We believe ADTRAN is well positioned to benefit from current
market dynamics. Additionally, the company's three key products
lines have registered continued revenue growth. The company is also
benefiting from several new product cycles in broadband access,
wireless backhaul products, fiber to the node, Ethernet over
copper, optical and enterprise VoIP.
However, we expect that the acquisition of the NSN fixed-line
Broadband Access business would continue to weigh on ADTRAN's
earnings performance this year given its weaker existing market
shares. Further, the declining performance of the company's
traditional product line, HDSL, lower spending by Tier 1 carriers
and its heavy reliance on its key customers such as
), along with regulatory issues in the telecommunication industry,
contribute to our cautious stance on the company.
Consequently, we are maintaining our long-term Neutral
recommendation on the stock supported by a Zacks #3 Rank
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