Over at Ciena
Nearly one week after reporting a rise in quarterly sales, operating profits of $2.8 million, and net profit per share of $0.12, shares of Ciena continued to fall yesterday, bringing the market-cap damage to 18% at last report. Why?
Although Ciena reported results much improved over last year's, it nonetheless fell short of hitting the top of its previous guidance range ($0.24 in "adjusted non-GAAP earnings"). The reason for this is that while revenues came in strong, the firm's gross margins continued to slide. This is the same slide I described in our Foolish Forecast before the earnings release, the one that Ciena admitted to last week when it said gross margins declined sequentially from 45.5% in Q4 2006 to 44.6% in Q1 2007, and the same slide that management studiously avoided mentioning three months ago.
But it's not all bad news
On the brighter side, for the first time in a long time, Ciena has proved itself capable of earning a profit from its business, as opposed to from interest on its bank account. As I noted in the Foolish Forecast, the business had put together back-to-back quarters of positive operating profits going into Thursday's report. The reported $2.8 million in operating profit for fiscal Q1 2007 sufficed to make it "operating profitable" for the trailing-12-month period. That means that when next quarter's Foolish Forecast comes out, you'll be looking at a firm with a bona fide positive operating margin (of 2.1%, assuming the 10-Q backs up the numbers in the unaudited press release).
Ciena also showed progress on its cash flow statement, where last year's Q1 showed it to be burning cash at the rate of $36.4 million every three months. Thursday's news revealed these flames turned down by half, burning less than $18 million in the quarter.
I think investors made the wrong call in selling off the stock last week, and were continuing to be overly pessimistic yesterday. Although gross margin is slipping, rather than gaining on more profitable peers such as Juniper
What did we expect out of Ciena last quarter, and what did we get? Find out in:
- Ciena Back in Black
- Ciena Paints a Pretty Picture: Fool by Numbers
- Foolish Forecast: Ciena No Longer Burnt
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Fool contributor Rich Smith does not own shares of any company named above.