ADTRAN Earns More than Expected

Zacks

Communication network solution provider ADTRAN Inc. (ADTN) reported better-than-expected fourth quarter and full year 2012 results, owing to strong contributions from the carrier and enterprise divisions. The results were, however, partially offset by market uncertainties and subdued spending by customers.

Quarterly adjusted earnings of 11 cents per share, comfortably beat the Zacks Consensus Estimate of 7 cents. However, this compares unfavorably with the year-ago adjusted earnings of 54 cents.

Adjusted earnings per share for the quarter exclude the impact of 2 cents in expenses, amortizations and adjustments related to acquisitions. The figure also excludes the negative impact of 3 cents related to stock-based compensation expenses.

The company reported quarterly revenues of $139.8 million, in line with the Zacks Consensus Estimate but down 20.3% year over year.

Operating income registered a steep drop of 93.0% year over year to $2.9 million despite operating expenses declining 4.9% year over year to $72.4 million.

For the full year, the company posted earnings of 94 cents per share (ahead of our projection by 28.8% but down 58.8% year over year), on revenue of $620.6 million (down 13.5% from the prior year).

Operating income came in at $56.2 million, reflecting a year-over-year decline of 70.3%. Operating expenses remained flat at $304.0 million.

Liquidity

ADTRAN exited 2012 with cash and cash equivalents of $68.5 million compared with $43.0 million at the end of 2011. As of Dec 31, 2012, the company’s long-term obligations to pay bonds remained at $46.0 million.

Dividend

The company’s board of directors declared a cash dividend of 9 cents per share for the quarter. The dividend will be paid on Feb 21 to shareholders of record as of Feb 7.

Our Viewpoint

We are maintaining our long-term Underperform recommendation on ADTRAN. The stock has a Zacks Rank #4, implying a short-term Sell rating.

Looking ahead, we expect ADTRAN’s revenue and earnings level to be under pressure due to weak performances by the company’s traditional products – mainly HDSL.  Regulatory factors, heavy reliance on its key customers such as AT&T Inc. (T) and Verizon Communications (VZ) as well as high spending on expansion could also restrict the company’s revenue stream and profitability.

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