) reported mixed second-quarter 2014 results. The telecom equipment
maker reported earnings of 6 cents per share (excluding share-based
compensation and other one-time items) as against a loss of 7 cents
reported in the year-ago quarter. Earnings managed to beat the
Zacks Consensus Estimate of 3 cents.
Shares were up 18.4% ($3.49) following the second quarter earnings
Revenues jumped 10.3% year over year to $560.1 million, which
lagged the Zacks Consensus Estimate of $562.0 million. Revenues
also beat the mid-point of management's guided range of $540.0 to
$570.0 million. Orders were up 7.0% on a year-over-year basis.
Product revenues (82.3% of revenues) rose 11.5% from the year-ago
quarter to $460.8 million. Services revenues (17.7% of revenues)
climbed 5.0% year over year to $99.2 million.
Converged Packet Optical revenues surged 63.7% year over year to
$356.8 million. Packet Networking increased 11.9% from the year-ago
quarter to $66.5 million. Optical Transport revenues increased 5.3%
year over year to $29.6 million. Software and services revenues
increased 19.1% from the year-ago quarter to $107.1 million.
United States contributed 58.0% of the revenues, while
international customers contributed 42.0% in the last quarter. One
customer represented 21.5% of the revenues.
) were two of Ciena's top carrier customers.
Gross margin (Including share-based compensation) expanded 60 basis
points (bps) on a year-over-year basis to 42.9% due to favorable
customer and product mix.
Operating expense, as a percentage of revenues (including
share-based compensation), declined 250 bps from the year-ago
quarter to 43.6%. The year-over-year decline was primarily driven
by lower research & development (down 140 bps), selling &
marketing (down 20 bps) and general & administrative expenses
(down 40 bps).
As a result of lower operating expenses, Ciena reported operating
income (including share-based compensation) of $23.0 million
compared with $8.8 million reported in the year-ago quarter.
Ciena reported net income of $7.4 million or 6 cents per share
versus a loss of $7.6 million or 7 cents in the year-ago quarter.
At the end of the second quarter of 2014, cash and cash equivalents
(including short-term and long-term investments) were $430.2
million compared with $440.1 million in the previous quarter. Cash
flow from operations was $2.0 million in the quarter compared with
outflow of $37.2 million in the prior quarter.
Ciena forecasts revenues in the range of $585.0 to $615.0 million
for the third quarter of fiscal 2014. The Zacks Consensus Estimate
is currently pegged at $592.0 million, slightly lower than the
mid-point of the company's guidance range.
Adjusted gross margin (excluding one-time operating items) is
projected to be at the lower to mid 40% range. Ciena expects
adjusted operating expense of approximately $210.0 million for the
Management expects order flow to increase from the second quarter
and remain strong during 2014. Ciena continues to expect average
operating expense of $205.0 million for fiscal 2014. The company
expects to achieve the lower end of its operating margin target
range of 7.0% to 10.0% for the fiscal year.
In the second half of 2014, the company is likely to introduce a
new application software and an entirely new product platform
targeting opportunities that will expand its addressable market in
a way that makes strategic sense for both Ciena and its customers.
Ciena provided a cautious second-quarter margin guidance, which may
remain an overhang on the stock in the near term. Higher operating
expenses continue to remain a concern.
Although Ciena expects to improve its operating leverage, we
believe any decline in top-line growth particularly due to stiff
) and Alcatel-Lucent S.A will negatively impact profitability,
Nevertheless, we believe increasing spending on optical upgrades
and higher number of orders from international customers will boost
top-line growth in fiscal 2014. Moreover, the company's Tier 1
contract wins and strong backlog are expected to boost near-term
Additionally, the diversification of customer base will be a major
growth driver going forward. Further, the partnership with Ericsson
is a significant positive that will drive international revenues in
the long run.
Currently, Ciena has a Zacks Rank #3 (Hold).
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