Acme Packet (Nasdaq: APKT) has been on probation in my book lately, and last night's fourth-quarter earnings figures won't help the company in regaining my favor. This story has some history to it, so let's revisit.
A trip down memory lane
It all started in October, when the Voice-over-Internet-Protocol (VoIP) specialist slashed its third quarter guidance, sparking a mean sell-off. CEO Andy Ory said it was due to a big order delay from major buyer AT&T (NYSE: T), but he was confident it would still be scored, reaffirming full-year guidance in the process. I had called the sell-off a case of market overreaction, since shifting an order from the third quarter to the fourth should have little impact on the long-term bigger picture, if one naively believes Ory's conviction.
The official third-quarter release should have seen no surprises, but shares sold off again even though the results matched up with the lowered guidance.
Fast-forward a couple of months, and Acme Packet comes out with yet another downward guidance revision, expecting fourth-quarter sales to be between $84 million and $86 million. This time around, Acme Packet also reduced its full-year earnings-per-share outlook from a range of $1.14 to $1.18 to a lower estimate of between $1.03 and $1.05.
The company chalked it up to "uncertainty in North American service provider markets," while Ory had tried to dispel fears that Verizon (NYSE: VZ) may also be cutting back on spending. If you thought Ory made a fool (with a lower case "f") of himself before, just wait until you get a load of the latest batch of digits.
Disappointment revisited
Revenue in the fourth quarter rose 18% to $83 million, with adjusted earnings per share coming out to $0.26, flat with the prior year. That means Acme Packet wasn't able to hit its already reduced revenue outlook.
For the full year, revenue rose by a third to $307.3 million, but profit came up short. Acme Packet pocketed $1.02 per share in adjusted earnings, telling a similar story as its reduced guidance. I'd always liked Acme Packet's position in providing the session-border controllers that make VoIP happen, but its recent track record of execution is nothing but disappointing.
The results look particularly bad when you consider that AT&T's failed takeover of T-Mobile was supposed to be freeing up its capital spending budget, to the joy of network-equipment providers. It's a little early to tell if Ma Bell's actually been opening its wallet more after its AT&T-Mo dreams were squashed, but if it is, those dollars don't seem to be coming to Acme Packet, because even Acme's guidance was soft.
Wait and see
Full-year 2012 profit is expected in the range of $0.96 to $1 per share, which doesn't quite compare to the $1.23 per-share profit that analysts are looking for. Ory said that Acme didn't meet its own expectations in 2011 "due to underperformance in the North American service provider market" (sound familiar?), as capital expenditures slowed in the tail end of the year.
He also added that he doesn't expect the first half of 2012 to be much better, since there is global precariousness around when voiceover LTE will be deployed. He again expressed his confidence that Acme Packet will capitalize as LTE networks begin to roll out all over the world.
I agree with Ory that as telecommunications infrastructure migrates towards 4G LTE (although many emerging markets are still boarding the 3G boat), Acme should see some opportunities. The problem is that Ory has lost some credibility by exuding confidence recently, claims followed by disappointing results. The opportunity is there, but can Acme Packet deliver and execute?
I'm moving to more of a neutral stance on Acme Packet, due to some of its missteps and Ory's misplaced recent confidence. I had previously given Acme Packet an "outperform" CAPScall, but I'm ending that pick today with a -12 score until this picture clears up a bit. Acme Packet still has some potential, but I'll be waiting on the sidelines to see if it can start delivering more reliably.
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