A month has gone by since the last earnings report for Adtran (ADTN - Free Report) . Shares have lost about 14.3% 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 its most recent earnings report in order to get a better handle on the important drivers.
ADTRAN Q2 Earnings Beat Estimates, Revenues Down Y/Y
ADTRAN reported lackluster second-quarter 2020 results, with the bottom and the top line deteriorating on a year-over-year basis. Apart from COVID-19 uncertainties, top-line contraction and lower revenues from Network Solutions segment negatively impacted the quarterly performance.
On a GAAP basis, net income for the June quarter was $0.8 million or 2 cents per share compared with $4 million or 8 cents per share in the year-ago quarter. The year-over-year deterioration was primarily caused by top-line contraction.
Quarterly non-GAAP net income came in at $1.6 million or 4 cents per share compared with $5.9 million or 12 cents per share in the prior-year quarter. The bottom line beat the Zacks Consensus Estimate by 3 cents.
Quarterly revenues amounted to $128.7 million compared with $156.4 million in the year-earlier quarter and surpassed the consensus estimate of $128 million. The decline was caused by lower sales in the Network Solutions segment, which fell 20% year over year to $111.3 million due to the COVID-19 pandemic. Meanwhile, sales from Services & Support segment were $17.4 million, up 1% from $17.2 million in the year-ago quarter.
Total cost of sales declined from $91.4 million to $75.2 million. Gross profit came in at $53.5 million compared with $65 million in the prior-year quarter. Operating loss for the second quarter was $6 million against an operating income of $0.6 million in the year-ago quarter.
Notably, the company communicated that its board of directors announced a quarterly cash dividend payout of 9 cents per share to shareholders on record as of Aug 20, payable on Sep 3.
Cash Flow & Liquidity
During the first six months of 2020, ADTRAN generated $1.7 million of net cash from operating activities compared with $11 million in the year-ago quarter. As of Jun 30, the networking equipment maker had $69.1 million in cash and equivalents with $7.6 million of other non-current liabilities.
Despite challenging macroeconomic conditions associated with the COVID-19 pandemic, ADTRAN emerged as a strong player and witnessed robust demand in emerging service provider markets. Notably, the company continues to optimize its customer, geographic and product diversity momentum as communications service providers scale up their network capabilities. The company added 33 new customers during the quarter and has been selected by numerous Tier 1 operators for its diversified portfolio of software-defined access, fiber extension, 10G PON solutions and Mosaic Cloud Platform. With robust growth in the Asia-Pacific region, ADTRAN also witnessed solid revenues from Tier 2 and Tier 3 service providers in the United States. Moreover, its strategy of diversification across the globe along with technological advancements instills optimism.
How Have Estimates Been Moving Since Then?
It turns out, estimates revision have trended upward during the past month. The consensus estimate has shifted 200% due to these changes.
Currently, Adtran has a subpar Growth Score of D, however its Momentum Score is doing a lot better with an A. However, 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 C. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Adtran has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.