So this is how you repay me, ADC Telecommunications (NASDAQ:ADCT)? I give you a little love after your last quarter, and here you are coming out and yakking the fourth quarter. Now, with the new guidance out, the stock is down about 17% as of mid-day Wednesday.
Actually, this one shouldn't be thought of as such a huge surprise. First, as I indicated in my earlier piece, turnarounds like ADC often have twists, turns, bumps, and lumps as they try to climb their way back to respectability. What's more, when the company last reported earnings, the management indicated that it looked as though customers had been accelerating their spending into the first half of the year, likely to the detriment of the second half.
Well, it looks like they were more right than they knew. Due to lower-than-expected sales of fiber-to-the-x (FTTX) infrastructure equipment, the company is going to miss its earlier projections. Instead of the average analyst estimates of $321 million in revenue and $0.28 per share in earnings, the company is looking at a range of $290 million to $300 million in revenue and earnings per share of $0.15 to $0.19. Management also mentioned that they were seeing lower sales of amplifiers and services for wireless companies during the quarter.
It seems that the big culprit in the quarter was Verizon (NYSE:VZ). Most likely, Verizon overspent in the first half of the year and is now working off that excess inventory. Given that the company still seems committed to its plans for fiber-to-the-premises, this is most likely more of a timing issue than a problem with competitors. Management actually sounded fairly optimistic about the FTTX business, and SBC (NYSE:SBC) and BellSouth (NYSE:BLS) could both perhaps become bigger customers next year.
In the meantime, ADC is still in a tricky spot. Some analysts have been calling for a recovery in communications equipment for some time now, and a lot of stocks have traded up in anticipation. Although some companies, including satellite players Radyne (NASDAQ:RADN) and Comtech (NASDAQ:CMTL), are showing improvements, others aren't quite back yet. Accordingly, my opinion on ADC hasn't really changed all that much -- it could pay off over the long term, but it's still a risky pick in a very competitive business.
We've wired up further Foolishness:
SBC is a Motley Fool Stock Advisor recommendation. Radyne is a Motley Fool Hidden Gems recommendation. Try a 30-day risk-free trial today.
Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).
