NTT Reports Solid Fiscal 2010

Nippon Telegraph & Telephone Corp. (NTT - Analyst Report) declared encouraging financial results for fiscal 2010 (ending March 31, 2011). Based on its strong execution in fiscal 2010, management announced that the company will repurchase common shares worth approximately $3.5 billion in the period between May 16, 2011 to September 30, 2011. This will be around 4.53% of Nippon’s total common outstanding shares.

On a GAAP basis, net income in fiscal 2010 was approximately $6,198 million, up 3.5% year over year.  Full-year 2010 ADS (American Depository Share) was approximately $2.34, up 3.5% year over year. Fiscal 2010 total revenue of around $125,335 million was an increase of 1.2% year over year. The increase was primarily attributable to massive growth of IP/Packet communications services.

Full-year 2010 operating expense was nearly $110,898 million, down slightly 0.3% year over year. Operating income in the previous year was approximately $14,822 million, up 8.7% year over year. Fiscal 2010 operating margin was 11.8% compared with 11% last year. This was mainly due to huge reduction in cost of equipments sold, selling, general and administrative costs and depreciation & amortization charges.

During fiscal 2010, Nippon generated approximately $34,430 million of cash from operations, up 0.5% year over year. Free cash flow (cash flow from operations less capital expenditures) in the previous year was $17,271 million, up 6% year over year.

At the end of fiscal 2010, Nippon had approximately $22,847 million of cash & marketable securities on its balance sheet compared with around $17,202 million at the end of fiscal 2009. Total debt was around $55,148 million at the end of fiscal 2010 compared with $48,206 million at the end of fiscal 2009. At the end of fiscal 2010, debt-to-capitalization ratio was 0.30 compared with 0.26 at the end of fiscal 2009.

Segment Wise Results

In fiscal 2010, Fixed voice revenue was $26,606 million, down 7.4% year over year. Mobile voice revenue was $24,663 million, down 6% year over year. IP/Packet Communications services revenue was $40762 million, up 6.8% year over year. The main reason for the significant surge in IP/Packet services segment was the packet offer from its wireless wing NTT DoCoMo (DCM - Analyst Report) for the increase in per user average revenue.

Saleof telecommunications equipment was $6.904 million, down 5.4% year over year. System Integration revenue was $16,863 million, up 11.2% year over year. Other segment generated the remaining $9,924 million, up 12.9% year over year.

Future Financial Outlook

For full fiscal 2011, management is expecting total revenue of the company to be approximately $128,588 million. Operating income will be around $15,128 million and net income will be approximately $6,588 million. Fiscal 2010 ADS will be around $2.64.

Recommendation

Currently, Nippon has a short-term Zacks #3 Rank (Hold) on the stock. We maintain our long-term Neutral recommendation on Nippon.

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