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Adtran (ADTN) Up 7.2% Since Last Earnings Report: Can It Continue?

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A month has gone by since the last earnings report for Adtran (ADTN - Free Report) . Shares have added about 7.2% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Adtran 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 catalysts.

ADTRAN Q4 Loss Wider Than Estimated, Revenues Up Y/Y

ADTRAN reported wider-than-expected loss in fourth-quarter 2018 despite top line growth owing to the adverse impact of the equity market volatility in the investment portfolio.

Net Loss

On a GAAP basis, net loss for the reported quarter was $8.4 million or loss of 18 cents per share compared with loss of $11.1 million or loss of 23 cents per share in the year-ago quarter. The year-over-year improvement was primarily due to top-line growth. For full-year 2018, net loss was $19.3 million or loss of 40 cents per share against net income of $23.8 million or 49 cents per share in 2017.

Quarterly non-GAAP loss was 12 cents per share against earnings of 5 cents in the year-earlier quarter, mainly due to absence of positive impact of the Tax Cuts and Jobs Act. The Zacks Consensus Estimate of loss was pegged at 2 cents.

ADTRAN’s bottom line reflected the effect of loss of $6.8 million in other income. This was primarily due to unrealized losses in its equity investment portfolio on account of U.S. equity market volatility during the quarter.

Revenues

Quarterly revenues were $140.1 million compared with $126.8 million in the prior-year quarter, beating the Zacks Consensus Estimate of $134 million. The year-over-year improvement reflected strong international revenue growth and increase in U.S. tier 1 sales, allowing ADTRAN to offset its normal sequential seasonal trend. While Products sales increased 22% year over year to $116.9 million, Services sales decreased 25.2% to $23.2 million. For full-year 2018, revenues were $529.3 million compared with $666.9 million in 2017.

Other Quarter Details

Total cost of sales increased from $68 million to $84.7 million year over year. Gross profit came in at $55.4 million compared with $58.8 million in the prior-year quarter. Operating loss was $3.8 million compared with loss of $4.2 million a year ago.

Acquisition

During the quarter, ADTRAN acquired SmartRG — a leading provider of open-source connected home platforms and cloud services. The buyout should help the company to expand its open, programmable and web scalable Mosaic Cloud platform.

Cash Flow and Liquidity

ADTRAN generated $56.6 million of net cash from operating activities in 2018 against cash utilization of $42.4 million in 2017.

As on Dec 31, 2018, the company had cash and cash equivalents of $105.5 million with $33.8 million of non-current liabilities compared with the respective figures of $86.4 million and $34.2 million a year ago.

The company also announced that its board of directors has declared a quarterly cash dividend of 9 cents per share to shareholders of record as on Feb 7, payable on Feb 21.

Going Forward

Despite bottom-line miss, ADTRAN is well positioned to optimize its customer, geographic and product diversity momentum as service providers aim to boost service speed and scale network capabilities. The company expects the short-term headwinds to gradually cede ground with increased customer engagements across its comprehensive portfolio of software-defined access, 10G solutions and G.fast products.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -125% due to these changes.

VGM Scores

Currently, Adtran has a poor Growth Score of F, however its Momentum Score is doing a bit better with a D. Charting a somewhat similar path, the stock was allocated a grade of F on the value side, putting it in the fifth quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. It's no surprise Adtran has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.


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