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Analyst Blog

Nippon Telegraph & Telephone Corp. (NTT - Snapshot Report) declared mixed financial results for the second quarter of fiscal 2011 (ending March 31, 2012). Revenue increased due to strong execution of long-distance call and international operations. Moreover, the company’s wireless services wing, NTT DoCoMo (DCM) also reported a healthy revenue growth.

On a GAAP basis, net income in the second quarter of fiscal 2011 was approximately $1,849 million, down 10% year over year.  EPADS (Earning per American Depository Share) was approximately 73 cents, down 6.2% year over year. Quarterly total revenue was around $31,099 million, an increase of 1.5% year over year.

Quarterly operating expense was nearly $33,762 million, up 4.7% year over year. However, operating income in the previous quarter was approximately $4,337 million, down 13.2% year over year. Second quarter of fiscal 2011 operating margin was 12.9% compared with 15.5% in the prior-year quarter.

During the first half of fiscal 2011, Nippon generated approximately $16,224 million of cash from operations, down 7.2% year over year. Free cash flow (cash flow from operations less capital expenditures) in the reported period was $7,412 million, down 5.8% year over year. At the end of the second quarter of fiscal 2011, Nippon had approximately $22,389 million of cash & marketable securities on its balance sheet compared with around $22,847 million at the end of fiscal 2010. Total debt was around $57,225 million at the end of the second quarter of fiscal 2011 compared with $55,148 million at the end of fiscal 2010. At the end of the second quarter of fiscal 2011, debt-to-capitalization ratio was 0.27 compared with 0.30 at the end of fiscal 2010.

Segment Wise Results

In the second quarter of fiscal 2011, Fixed voice revenue was $6,292 million, down 10.9% year over year. Mobile voice revenue was $6,113 million, down 9.5% year over year. IP/Packet Communications services revenue was $11,602 million, up 8.1% year over year. Sale of telecommunications equipment was $1,828 million, up 22.3% year over year. System Integration revenue was $5,612 million, up 46.1% year over year. Other segment generated the remaining $2,316 million, down 2.2% year over year.

Future Financial Outlook

For full fiscal 2011, management expects total revenue to be approximately $128,588 million. Operating income will be around $15,128 million and net income will be approximately $6,588 million. Moreover, fiscal 2011 EPADS 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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