Ciena Books an Unexpected Profit

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Despite missing revenue estimates, network equipment specialist Ciena (Nasdaq: CIEN  ) posted an unexpected non-GAAP quarterly profit this morning, sending shares up as much as 21% as of this writing.

Analysts were expecting a non-GAAP loss of $0.08 and the company delivered a profit of $0.08. Ciena CEO Gary Smith attributed the adjusted operating profit to a "favorable product mix and reduced operating expense." The numbers back up this statement, as revenue increased 11.7% from last year while operating expenses dropped 17% over the same period. The company's operating leverage is starting to kick in, and I prefer companies with operating leverage.

Gross margin has notably increased, from 37% last year to 42.5%. Shareholders are looking at the bright side; revenue came in at the short end of guidance at $435.3 million. Looking forward, management guided next-quarter revenue in the range of $440 million to $460 million, which is shy of consensus estimates. Last quarter's weak guidance contributed to a sell-off, but this quarter, the surprise profit is taking the show.

One problem I can't ignore is that Ciena continues to burn through cash. The company has $486.3 million in cash and equivalents, down from $688.7 million back in October of last year. For the first three quarters of its fiscal year, Ciena has used $132.5 million just in operating activities. This is an improvement from the $203.2 million used in operations for the same period last year.

There's been a lot of pessimism throughout the networking sector lately, in part sparked by misses from Juniper Networks (NYSE: JNPR  ) and Riverbed Technology (Nasdaq: RVBD  ) . Ciena has taken it worse than others and is down more than 30% this year. This quarter's unanticipated profit is an auspicious signal for Ciena's turnaround, although my personal networking pick remains Riverbed Technology.

Fool contributor Evan Niu owns shares of Riverbed Technology, but he holds no other position in any company mentioned. Click here to see his holdings and a short bio. Motley Fool newsletter services have recommended buying shares of Riverbed Technology. Motley Fool newsletter services have recommended writing puts in Riverbed Technology. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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10/25/2016 11:53 AM
CIEN $19.71 Down -0.34 -1.70%
Ciena CAPS Rating: **
JNPR $23.40 Down -0.26 -1.10%
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RVBD.DL $0.00 Down +0.00 +0.00%
Riverbed Technolog… CAPS Rating: *****