3 Things to Watch For When CalAmp Corp. Reports Earnings

CalAmp (CAMP +0.00%) will report second-quarter earnings for its 2015 fiscal year after the closing bell on October 6th.

What will it take to get CalAmp back on track?It hasn't been a good year for CalAmp shareholders, who've seen their shares fall by 40% since the start of 2014. Two of CalAmp stock's worst days this year were the result of disappointing earnings. The company's 2014 fiscal fourth quarter report shaved nearly a quarter off share values in April, and its 2015 first-quarter earnings report caused another double-digit decline in July. Investors are certainly hoping for a better response to the company's upcoming earnings, but with shares down 12% over the past month, optimism seems a little hard to come by.

Can CalAmp surpass expectations after repeatedly lowering them over the past year?
CalAmp's management seems to have a knack for tamping down Wall Street's expectations. The difference between analyst estimates issued before and after CalAmp's own forward guidance shows that the company has nudged these estimates lower in each of the past three quarters, with the year-ago quarter's consensus staying at the same level after CalAmp released its guidance:

Sources: CalAmp earnings reports and news recaps.
* Consensus estimates reported here here are displayed as those assessed both before and / after CalAmp issued its own quarterly guidance.

Despite besting these tamped-down expectations in three of the last four reported quarters, CalAmp has nevertheless damaged itself by repeatedly issuing guidance below Wall Street's advance estimates. You could certainly make the case that analyst expectations are irrelevant and growth is what really matters, and while that may be true over the long term, Wall Street's lofty projections -- and CalAmp's inability to reach them with its own projections -- have had a major impact on CalAmp's shares over the past year.

CalAmp's third-quarter guidance may very well become the prime mover of its share prices after the second-quarter report is made public. However, the erratic and somewhat cyclical nature of CalAmp's growth might also have something to do with its tendency toward offering underwhelming guidance.

Can CalAmp start painting a more consistent picture of growth?
CalAmp's year-over-year growth rates have fluctuated wildly, but in a fairly recognizable pattern, over the past two years. Seasonal weakness in the first quarter has led to strengthening through the second and third quarters. Based on its recent history, CalAmp's fiscal second quarter should have better growth rates than its first, but the company's most recent guidance now implies that both revenue and EPS will be essentially flat  year-over-year . That would make this the weakest quarter of the past two years, since CalAmp has put together double-digit percentage growth on the top line in each of the past eight quarters, even in the one quarter during which EPS declined:

Source: CalAmp earnings reports.

Concentrated revenue
CalAmp's reliance on a few large customers has been a major factor behind the chunkiness of its growth, and its first-quarter earnings call  offered investors little assurance that the company has smoothed out these chunks for the second quarter. Executives expect Wireless Datacom segment revenue to rise year-over-year for the second quarter, but this will be offset by a "sharp decline" in Positive Train Control revenues.

Management also expects the second half of CalAmp's 2015 fiscal year to be "significantly stronger" than its first half, so investors will be watching comments and guidance issued during the second-quarter report very closely. The current consensus  on Wall Street calls for $59 million in revenue and $0.17 in EPS, with projections rising to $65.2 million  in revenue and $0.24 in EPS for the upcoming third quarter. Wall Street's third-quarter estimates imply year-over-year growth of just 3% on the top line and 4% on the bottom line, and CalAmp will have to do better than that to regain investor optimism. You can't call it a growth stock when there's hardly any growth taking place.

A return to the higher growth rates of earlier quarters will be essential to restoring market optimism that's been lost in CalAmp's recent "underperformance." Despite (or perhaps because of) these recent weak spots, CalAmp is doubling down on big contracts from large customers, as evidenced by comments made during the company's first-quarter earnings call.

Can (and should) CalAmp sign up any more large customers?
CalAmp's management expects revenue from a telematics supply deal with Caterpillar (CAT +2.83%) should hit the high end of a $5 million to $10 million projection for the second half of fiscal 2015. Let's say that works out to $9 million -- that would be worth roughly 8% of CalAmp's revenue over its two most recent quarters.

Caterpillar was the only customer CalAmp executives singled out by name in its last earnings call, but it's hardly the only one with the power to move the company's fortunes on its own. Another major customer, though highlighted only as an "OEM customer  in the commercial solar power industry," had a significant impact on CalAmp's first quarter, and executives believe that this customer will provide significant buoyancy to second-half revenue. One key customer also contributed roughly a fifth of all revenue  earned by CalAmp's Satellite segment in the first quarter.

Plenty of tech companies are more reliant on a single major customer than CalAmp, but it's hard to deny that these large deals contribute to the yo-yo nature of CalAmp's growth. Its deal with Caterpillar should help CalAmp grow its revenue in the near term, but it will have to be augmented and eventually replaced by other deals. Will CalAmp be able to diversify during the second half, or will it find itself relying more on big contracts to drive its gains?