It has been about a month since the last earnings report for Viav Solutions (VIAV - Free Report) . Shares have lost about 17% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Viav Solutions 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.
Viavi Q4 Earnings Beat Estimates, Revenues Fall Y/Y
Viavi reported decent fourth-quarter fiscal 2020 (ended Jun 27, 2020) results, with the bottom and the top line surpassing the Zacks Consensus Estimate. The San Jose, CA-based company delivered lower revenues owing to pandemic-related adversities.
On a GAAP basis, net income from continuing operations came in at $26.7 million or 12 cents per share compared with $12.5 million or 5 cents per share in the year-ago quarter. The more than two-fold rise despite top-line contraction was primarily driven by lower operating expenses. For fiscal 2020, earnings from continuing operations were $28.7 million or 12 cents per share compared with $5.4 million or 2 cents per share in fiscal 2019.
In the June quarter, non-GAAP net income came in at $40.8 million or 18 cents per share compared with $40.1 million or 17 cents per share in the prior-year quarter. The bottom line beat the Zacks Consensus Estimate by 4 cents. For fiscal 2020, non-GAAP net income was $171.3 million or 73 cents per share compared with $156.2 million or 68 cents per share in fiscal 2019.
Impacted by the pandemic, quarterly total net revenues declined 8% year over year to $266.6 million compared with $289.7 million in the prior-year quarter. However, the top line surpassed the consensus estimate of $260 million. Fiscal 2020 revenues rose 0.5% to $1,136.3 million from $1,130.3 million on the back of marginal growth in NSE (Network and Service Enablement) revenues.
Segment wise, revenues from NE (Network Enablement) fell 8.3% from the year-ago quarter’s figure to $180.9 million due to reduced demand of field instruments stemming from the virus outbreak. This was partially offset by record 5G-related growth in wireless lab products. Meanwhile, SE (Service Enablement) revenues improved 14.1% to $27.5 million, mainly driven by robust demand for datacenter, enterprise and assurance products. NSE’s gross margin was 64.6%, down 110 basis points (bps) year over year. Its operating margin of 16.9% increased 350 bps driven by lower variable expenses and efficiency programs on the back of prudent expense control measures.
OSP (Optical Security and Performance Products) revenues declined 14.8% year over year to $58.2 million compared with $68.3 million in the year-ago quarter. The year-over-year deterioration was mainly caused due to softer demand of anti-counterfeiting products, partially offset by solid growth in 3D sensing revenues. OSP’s gross margin of 51% expanded 150 bps year over year owing to improved efficiencies. Meanwhile, operating margin of 29.4% contracted 160 bps year over year. The downside was primarily due to lower revenues on the back of relatively fixed OSP operating expenses.
Region wise, Viavi generated 38.8% of total net revenues from the Americas, 27.7% from the Asia-Pacific and 33.5% from EMEA (Europe, Middle East and Africa).
Overall non-GAAP gross profit declined to $164.4 million with a margin of 61.7% from $179.2 million with 61.9% in the year-ago quarter. Non-GAAP operating income was $52.3 million compared with $50.9 million in the prior-year quarter with respective margins of 19.6% and 17.6%. Non-GAAP operating margin rose 200 bps year over year driven by judicious expense management.
Cash Flow & Liquidity
In fiscal 2020, Viavi generated $135.6 million of net cash from operating activities compared with $138.8 million in the prior fiscal. As of Jun 27, 2020, the company had $539 million in cash and equivalents with $600.9 million of long-term debt compared with the respective tallies of $521.5 million and $578.8 million in the year-ago quarter. The company repurchased nearly $0.6 million worth of shares at an average cost of $10.60 per share in the quarter. Of the $200 million authorized share buyback program announced in September 2019, Viavi repurchased $44.4 million worth of shares to date.
Q1 2021 Guidance
Despite uncertainties pertaining to the ongoing pandemic, Viavi provided a definitive outlook for the first quarter of fiscal 2021. Revenues are expected in the range of $258-$282 million with adjusted earnings in the band of 14-16 cents per share. For NSE, revenues are anticipated in the range of $170-$190 million and that of OSP is expected in the vicinity of $88-$92 million.
Viavi’s long-term growth strategy depends on three pillars — Fiber, 5G Wireless and 3D Sensing. The company is confident about generating higher revenues and profitability in the upcoming quarter supported by solid demand. Backed by a robust liquidity position, the company is committed to overcome the near-term catastrophic impact of COVID-19 with its much-acclaimed counter-cyclical business portfolio.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in estimates review. The consensus estimate has shifted 9.38% due to these changes.
Currently, Viav Solutions has a strong Growth Score of A, a grade with the same score on the momentum front. 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 A. 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. Notably, Viav Solutions has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.