Newbridge beats the estimates
Bottlenecks solved, company readies new
lines
James Bagnall
The Ottawa Citizen
Newbridge Networks Corp.
yesterday topped analysts' first
quarter earnings projections
thanks in part to the solid
performance of its main
product line -- the ATM 36170
-- which is growing at twice the
industry average.
The Kanata-based firm, which
makes high-speed
communications switches and
other gear, also said it had
solved most of the
manufacturing bottlenecks that
hurt its two previous quarters.
Finally, chief operating officer
Alan Lutz hinted he is now set
to unveil its strategy for what it
hopes will become a substantial
new product line involving
Internet Protocol (IP)
technology.
"On the IP thing, stand by," Mr.
Lutz said. "We took a hit to our
credibility at the end of the
fourth quarter, so we decided
that talking about the future
would have to wait until we showed we could deliver financially.
"Well, we've done that."
Newbridge reported net earnings of $47.7 million (18 cents U.S. per share)
for its first fiscal quarter ended Aug. 1 -- up 31 per cent from the same
period a year earlier. This beat the consensus estimate of 16 cents U.S.,
marking the first time in three quarters that the firm has done so. Revenues
jumped 16 per cent year-over-year to reach a record $495.1 million. That
was near the high end of analysts' projections.
"The latest quarter appears to be a first step toward regaining credibility for
the company," acknowledged Tom Astle, an analyst with Toronto-based
Merrill Lynch Canada, who had expected sales in the range of $475 million
to $485 million.
Even so, Newbridge has a long way to go before it can claim a full recovery.
Although the firm exceeded its previous quarterly sales record by more than
eight per cent, Newbridge's net profits remain less than 10 per cent of sales
-- well below the 24.5-per-cent margin it achieved in the record-setting
fourth quarter of fiscal 1996.
Provided Newbridge can continue meeting analysts' projections, its profit
margins will improve swiftly. The consensus estimate for fiscal 2000, which
ends April 30, is for a profit of 95 cents U.S. -- up nearly 60 per cent from
fiscal 1999. A newly conservative Mr. Lutz warned analysts not to adjust
their annual numbers upward simply because Newbridge had exceeded its
first-quarter targets.
"We don't want that to happen," Mr. Lutz said.
Mr. Lutz was obviously under the gun to produce a good quarter. He was
appointed chief operating officer only 15 months ago and was facing the
possibility of disappointing analysts and investors for a third straight quarter.
But the experience of the past few weeks appears to have energized him.
"The desire on the part of Newbridge employees to make this quarter and
run the company differently was actually a joy to watch," he said.
Mr. Lutz also shed some interesting light on a recent rumor that Swedish
telecommunications equipment giant LM Ericsson had made an offer July 23
to buy Newbridge for $45 U.S. per share.
"We traced the rumours to wild speculation by one analyst who had been
talking to the company at low levels. All this talk about meetings in
Washington and an offer of $45 U.S. per share on July 23, that was crap."
That's not to say that talks between Ericsson and Newbridge haven't taken
place -- just not on the dates and conditions that emerged earlier this
summer in the form of rumours. Meantime, Mr. Lutz and his new team of
managers are trying to transform the firm into a property that will fetch an
even higher price as a standalone company. The latest quarter should help
them begin to do it. |
