Please ensure Javascript is enabled for purposes of website accessibility

Why ARRIS International plc Stock Dropped Today

By Steve Symington – Feb 18, 2016 at 1:36PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The telecommunications equipment specialist ended 2015 on a rough note. Here's why.

What: Shares of ARRIS International plc (ARRS) were down 14.6% as of 11:30 a.m. Thursday after the telecommunications equipment company announced mixed preliminary fourth-quarter 2015 results, and disappointing forward guidance.

So what: Quarterly revenue fell 12.8% year over year to $1.102 billion. That translated to an 8% decline in adjusted net income to $93.5 million, and a 20.5% decline in adjusted net income per diluted share to $0.62. Based on generally accepted accounting principles (GAAP), net income per diluted share fell 84.5% to $0.20. Note both bottom-line figures include a $0.14-per-share benefit related to R&D tax credits.

Analysts, on average were anticipating lower adjusted earnings of $0.47 per share, but higher revenue of $1.13 billion.

"Our fourth quarter sales were in line with our expectations," elaborated ARRIS CEO Box Stanzione, "and our earnings were stronger than anticipated as a result of stronger CCAP E6000 sales, as well as the full year impact of R&D tax credits enacted by Congress late in the year. We closed the Pace acquisition on January 4 and have made substantial progress on our integration activities."

Now what: For the current quarter, ARRIS anticipates revenue in the range of $1.56 billion to $1.61 billion, with adjusted net income per diluted share of $0.37 to $0.42, and GAAP net income per share of $0.01 to $0.06. Wall Street, for its part, was predicting significantly higher first-quarter adjusted net income of $0.58 per share on revenue of $1.68 billion.

That's not to say ARRIS looked particularly expensive going into today's report; shares currently trade for just 12.2 times trailing-12-month earnings, and only 5.7 times this year's estimates. At the same time, investors should expect to see analysts ratchet down those estimates as they digest the implications of ARRIS' current weakness. It should be relatively unsurprising, then, that ARRIS' board also approved a new $300 million share repurchase authorization two days ago to replace its existing programs. 

Nonetheless, I'm content watching ARRIS' progress as it continues to integrate its acquisition of Pace, which appeared to present significant synergies and offer promising new growth opportunities when it was initially announced almost a year ago. Until ARRIS can demonstrate its ability to spur its falling sales and find that growth, however, I suspect the stock will remain under pressure.

Steve Symington has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. 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.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.