It has been about a month since the last earnings report for Ciena Corporation (CIEN - Free Report) . Shares have added about 13.1% in that time frame.
Will the recent positive trend continue leading up to its next earnings release, or is CIEN due for a pullback? 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.
Ciena’s Q2 Earnings Miss Estimates, Revenues Beat
Ciena reported mixed financial results for the second-quarter fiscal 2018 (ended Apr 30, 2018).
On a GAAP basis, net income for the reported quarter came in at $13.9 million or 9 cents per share compared with $38 million or 25 cents per share in the year-ago quarter. The year-over-year decrease was primarily due to higher cost of goods sold.
Non-GAAP net income was $33.8 million or 23 cents per share compared with $48.2 million or 30 cents per share in the year-ago quarter. The bottom line missed the Zacks Consensus Estimate by 7 cents.
Quarterly total revenues increased 3.3% year over year to $730 million, driven by continued growth in APAC (Asia Pacific) service providers as well as global webscale customers. Notably, India alone delivered $79 million in quarterly revenues, up 20% year over year.
The top line surpassed the Zacks Consensus Estimate of $729 million.
Gross margin was 40.2% compared with 45% in the year-ago quarter, impacted by several new, international service provider deployments.
Operating expenses were $261.2 million compared with $260.4 million in the year-earlier quarter. Operating margin was 4.4% compared with 8.2% in the prior-year quarter.
Adjusted EBITDA was $77.1 million, down from $107.6 million in the year-earlier quarter owing to higher cost of goods sold and operating expenses.
Revenues from Networking Platforms increased 3.5% year over year to $591.7 million. Software and Software-Related Services revenues were $38.7 million compared with $37.7 million in the prior-year quarter. Revenues from Global Services were $99.6 million compared with $97.8 million in the year-earlier quarter.
During the quarter, Ciena inked a definitive agreement to acquire Packet Design, LLC, a provider of network performance management software focused on Layer 3 network optimization, topology and route analytics, for an undisclosed amount.
The buyout is expected to accelerate Ciena’s software strategy and contribute toward its long-term financial goal of growing its Blue Planet and associated services business by approximately 14-16% annually over the next three years.
During the quarter, Ciena repurchased approximately 1.4 million shares of common stock for an aggregate amount of $33.4 million.
During the quarter, Ciena generated $37.4 million as cash from operating activities while its free cash flow amounted to $31.1 million. Cash flow for the first six months of 2018 improved to $73.1 million from $45.7 million in the prior-year period.
As of Apr 30, 2018, Ciena had $652.1 million of cash and cash equivalents and $585.5 million of net long-term debt.
The company ended the quarter with approximately $980 million in cash and investments.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended downward during the past month. There has been one revision higher for the current quarter compared to eight lower. In the past month, the consensus estimate has shifted downward by 9.8% due to these changes.
Ciena Corporation Price and Consensus
At this time, CIEN has a poor Growth Score of F, a grade with the same score on the momentum front. However, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
The company's stock is suitable solely for value based on our styles scores.
Estimates have been broadly trending downward for the stock and the magnitude of these revisions indicates a downward shift. Interestingly, CIEN has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.