Let's see. May 2. About time Canadian networking bigwig Nortel (NYSE:NT) got around to reporting its Q4 and full-year 2004 results, don't you think? Well, given the accounting scandal, among other troubles that have been plaguing Nortel for, oh, it seems like a million years, you can perhaps forgive the delay. Or perhaps not.
Today's news, summarized in a press release and detailed in a 300-plus-page 10K, isn't great, but tepid losses from Nortel may be about the best investors can hope for these days.
I have to admit, Nortel loses me at "hello." The firm describes its business in annoyingly pretentious Dilbert-speak, saying its mission is to deliver "communications capabilities that enhance the human experience, ignite and power global commerce, and secure and protect the world's most critical information."
Given management's continued propensity for bombast -- look no further than the odd "playing to win" slogan -- I thought it might be useful to engage in a bit of Foolish press release translation and rewriting, to clarify what is obscured in the original Canadian. Oh, and toward the bottom, we'll add a couple of minor details that seem to have slipped past the folks who write the press releases.
Nortel: ". enhance the human experience. yada, yada, yada."
Translation: "We sell networking stuff, like a lot of other firms, including Juniper (NASDAQ:JNPR), Cisco (NYSE:CSCO), Alcatel (NYSE:ALA), Avaya (NYSE:AV), and others.
Nortel: "Q4 2004 revenues of $2.6 billion, up sequentially 20%."
Translation: "The key difference with us is, we're selling less of it, even though 2004 saw an overall increase in spending in our sector! Revenues were down 20% for the quarter on a year-over-year basis. And sales were down 3.5% for the full year."
Nortel: "Q4 2004 new earnings of $133 million, $0.03 per common share on a diluted basis."
Translation: "Net earnings were down 75% for the quarter, and would have been a net loss of $53 million without special items. We lost $51 million for the entire year, compared with a profit of $434 million last year."
Left unsaid: "Despite a drop in revenues, inventories bloated 46%. Selling, general, and administrative expenses ballooned to 20.5% of sales, even after straining out the costs for restatement. The near-6% increase over last year's quarter effectively wiped out the slim gain in gross margin that we bragged about earlier in the press release."
Nortel: "For the full year 2005, we expect to grow revenue compared to 2004 and gross margins to be in the range of 40%-44% of revenue."
Translation: "Did we mention we're buying government IT contractors PEC Solutions (NASDAQ:PECS)? Cough. Homeland Security! Cough. Its $200 million in sales should help us prop up our own sagging numbers."
Bottom line: I'm not sure what investors see in this fallen tech star. After being purged of bad management, it's left with a new batch of managers whose tendency toward sugar-coating strikes me as a bit odd, given the circumstances. But even if you can forgive the PR obfuscation, the business itself looks risky. With more restructuring to do, plus the integration of lower-margin PEC, Nortel has plenty of tough work cut out for it. If you can't find a better-looking investment for your dollars, you're not looking hard enough.
For related Foolishness:
- Nortel, a good example of how not to sell a winner?
- There's no telling with Nortel.
- Were you enticed by cheap Nortel? How about now?
- Or were you just feeling Nortel's pain?
Seth Jayson prefers to network via can and string. At the time of publication, he had positions in no firm mentioned. View his stock holdings and Fool profile here. Fool rules are here.
