On Thursday, Aug. 3, Nortel Networks (NYSE:NT) released Q2 2006 earnings for the period ended June 30. Highlights:
- Nortel is GAAP profitable again, but at the same time, free cash flow has turned negative.
- The operating and net margin improvements are not as solid as they look. $455 million, or $0.10 per diluted share, of the operating earnings came from litigation recoveries and other one-time items.
- Back out those items, and Nortel saw operating margins of -1.32%, along with net margins of -3.1%. Looks can be deceiving.
(Figures in millions, except per-share data)
Income Statement Highlights
| Avg. Est. | Q2 2006 | Q2 2005 | Change | |
|---|---|---|---|---|
| Sales | $2,800 | $2,744 | $2,619 | 4.8% |
| Net Profit | -- | $366 | ($33) | N/A |
| EPS | $0.01 | $0.08 | ($0.01) | N/A |
| Diluted Shares | -- | 4,340 | 4,338 | 0% |
Get back to basics with a look at the income statement.
Margin Checkup
| Q2 2006 | Q2 2005 | Change* | |
|---|---|---|---|
| Gross Margin | 38.85% | 43.3% | (4.45) |
| Operating Margin | 15.09% | (1.79%) | 16.88 |
| Net Margin | 13.34% | (1.26%) | 14.6 |
Margins are the earnings engine. See how they work.
Balance Sheet Highlights
| Assets | Q2 2006 | Q2 2005 | Change |
|---|---|---|---|
| Cash + ST Invest. | $2,550 | $3,133 | (18.6%) |
| Accounts Rec. | $2,785 | $2,735 | 1.8% |
| Inventory | $2,035 | $1,315 | 54.8% |
| Liabilities | Q2 2006 | Q2 2005 | Change |
|---|---|---|---|
| Accounts Payable | $1,065 | $1,144 | (6.9%) |
| Long-Term Debt | $3,770 | $3,887 | (3%) |
Learn the ways of the balance sheet.
Cash Flow Highlights
| Q2 2006 | Q2 2005 | Change | |
|---|---|---|---|
| Cash From Ops. | ($108) | $110 | N/A |
| Capital Expenditures | $78 | $70 | 11.4% |
| Free Cash Flow | ($186) | $40 | N/A |
Find out why Fools always follow the money.
Related Companies:
- Alcatel (NYSE:ALA)
- Cisco (NASDAQ:CSCO)
- Lucent (NYSE:LU)
- Ericsson (NASDAQ:ERICY)
- Juniper Networks (NASDAQ:JNPR)
- Avaya (NYSE:AV)
Related Foolishness:
- Foolish Fundamentals: Margins
- Foolish Fundamentals: Free Cash Flow
- Foolish Fundamentals: GAAP
- Foolish Fundamentals: The Cash Flow Statement
Check out our suite of newsletters with a 30-day trial.
Fool by Numbers is designed to give you the raw earnings information in a timely fashion, putting all the numbers you need in one easy-to-read place. But at The Motley Fool, we believe numbers tell only part of the story, so check Fool.com for more of our in-depth discussion of what the numbers mean.
At the time of publication, Anders Bylund had no positions in any of the companies mentioned. Fool rules are here.
