ADC Telecommunications warns of lower earnings and sales
Eric Wieffering
Star Tribune
Published Nov 2 2001
ADC Telecommunications said it will report a bigger than
expected loss, and lower sales in the fourth quarter, marking
the fourth consecutive period in which the company had
missed its own diminished expectations.
The announcement -- together with recent gloomy outlooks
from companies that would be its customers, such as Verizon
Communications, WorldCom Inc. and SBC Pacific Bell --
suggests that the year-long telecommunications slump is
unlikely to end soon.
Indeed, ADC said it does not expect to be profitable again until
the second half of 2002, and that milestone will owe more to its
own aggressive cost cutting efforts than a resumption of the
free-spending ways of its biggest customers.
In the past 12 months ADC has shed 40 percent of its work
force, slashed operating expenses by 40 percent, and reduced its
real estate needs by 36 percent. The company also has
scrambled to sell money-losing divisions acquired during a
three-year spending spree in the late 1990s.
On Thursday, for example, ADC sold two software companies
for $45 million in cash. It originally paid $163 million in cash
and $89 million in stock to acquire the companies in 1997 and
2000, and they had combined revenue of about $50 million in
2001, said U.S. Bancorp Piper Jaffray analyst Frank McEvoy,
who rates ADC's stock "neutral."
Still, ADC's cuts have barely kept pace with the precipitous
decline in demand for its products.
"There's simply not much demand for networking equipment,"
McEvoy said.
ADC said it now expects to lose 7 or 8 cents share, or $55
million to $63 million before one-time and non-cash charges,
for its fourth fiscal quarter, which ended Oct. 31. The company
earned 18 cents a share, or $137.9 million, in last year's fourth
quarter on the same basis.
ADC said it expects to post fourth-quarter sales of $380
million to $400 million, down 62 percent from a year ago.
By contrast, last year's fourth quarter proved to be the
high-water mark of an extraordinary year for the Eden Prairie
firm. For the first time ever, quarterly sales topped $1 billion.
Though some analysts fretted about a likely slowdown in
spending for communications gear, ADC executives dismissed
those concerns and fearlessly predicted that its sales would rise
30 percent, to $4.3 billion, in 2001.
But 2001 turned out to be the mirror image of 2000. Instead of
rising 30 percent, 2001 sales will fall about 25 percent, to about
$2.4 billion. The company's net loss through the first nine
months of 2001 -- $1.1 billion -- will all but erase profits of
the previous three years.
On Thursday ADC shares closed down 18 cents, or 4 percent,
at $4.37. The company is scheduled to report final quarterly
results Nov. 28, after markets have closed.
-- Eric Wieffering is at ewieffering@startribune.com .
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