Technology

Why Is Adtran (ADTN) Down 12.7% Since Last Earnings Report?

A month has gone by since the last earnings report for Adtran (ADTN). Shares have lost about 12.7% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Adtran due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

ADTRAN Q2 Earnings & Revenues Top Estimates, Up Y/Y

ADTRAN reported solid second-quarter 2019 preliminary financial results, wherein the bottom and top lines, both beat the respective Zacks Consensus Estimate.

It should be noted that the company’s results for the reported quarter and the year-to-date period, ended Jun 30 are preliminary due to its ongoing assessment of the reasonableness of the current and previously-reported excess and obsolete inventory reserves.

Net Income

On a GAAP basis, net income for the quarter was $5.1 million or 11 cents per share against net loss of $7.7 million or loss of 16 cents per share reported in the year-ago quarter. This improvement was primarily driven by top-line growth.

Non-GAAP net income came in at $6.9 million or 14 cents per share against net loss of $4.6 million or loss of 9 cents per share posted in the prior-year quarter. The bottom line beat the Zacks Consensus Estimate by 8 cents.

Revenues

Quarterly revenues were $156.4 million compared with $128 million in the year-earlier quarter, marginally surpassing the consensus estimate of $156 million. The upside reflected strong international revenue growth. While Products’ sales jumped 20.9% year over year to $139.2 million, Services’ sales increased 32.6% to $17.2 million.

Other Details

Total cost of sales flared up from $78.1 million to $90.1 million year over year. Gross profit came in at $66.3 million compared with $50 million in the prior-year quarter. Operating income in the reported quarter was $1.8 million against operating loss of $12.8 million posted a year ago.

ADTRAN’s revenues were diverse and well balanced, with contributions across North America, LATAM, EMEA and Pacific Rim regions. The company’s broad portfolio of next-generation solutions continues to gain market traction with a growing number of customers in an expanding range of market segments.

Cash Flow & Liquidity

During the first six months of 2019, ADTRAN generated $12 million of net cash from operating activities compared with $52.9 million in the year-ago period. As of Jun 30, 2019, the networking equipment maker had $106.8 million in cash and equivalents, with $44.2 million of non-current liabilities.

Concurrent with the results, the company stated that its board of directors has announced a quarterly cash dividend of 9 cents per share to shareholders of record as of Aug 1, payable on Aug 15.

Going Forward

ADTRAN continues to optimize its customer, geographic and product diversity momentum as communications service providers scale their network capabilities. The company is poised to benefit from growing customer engagements across its comprehensive portfolio of software-defined access, 10G solutions and G.fast products. This apart, its global strategy of diversification across geographies and markets instill optimism.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates revision. The consensus estimate has shifted -83.33% due to these changes.

VGM Scores

Currently, Adtran has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with a D. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Adtran has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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

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