THREAD ---Lucent Technologies Inc.
Dow Jones Newswires -- October 26, 1999
DJ Lucent 4Q EPS, Rev Top Forecasts On Relentless Demand
By Shawn Young
NEW YORK (Dow Jones)--Profit at Lucent Technologies Inc. (LU) more than quadrupled in the fiscal fourth quarter as steamrolling demand for phone and data equipment pushed revenue up 23%.
Revenue exceeded analysts' forecasts, coming in at $10.58 billion, compared with $8.57 billion a year ago. Lucent's core unit, which provides network equipment to phone companies, posted revenue growth of 32%.
"The revenue growth was just phenomenal," said Warburg Dillon Read analyst Nikos Theodosopolous, who found the growth rate all the more impressive given that companies of Lucent's size typically grow more slowly.
The Murray Hill, N.J., company posted revenue for the fiscal year of $38.3 billion, up 20% from $31.8 billion in fiscal 1998.
Lucent, the largest telecommunications-equipment maker, earned a fourth-quarter profit of $948 million, or 30 cents a diluted share, compared with $220 million, or 7 cents, a year ago. Figures for both periods include one-time items, which were dominated by gains in the current period and acquisition-related charges in the year-ago quarter.
Excluding one-time items, the telecommunications-equipment maker's earnings rose 50% to $972 million, or 31 cents, from $647 million, or 21 cents, a year ago. The Wall Street consensus estimate was that the company would earn 29 cents.
The earnings report should end a period of negative speculation about Lucent's performance that has weighed on its shares since they hit a 52-week high of 79 3/4 on July 16.
"This should put to bed all the naysayer perspectives," said Sanford C. Bernstein & Co. analyst Paul Sagawa.
Lucent's NYSE-listed stock recently was up 3 3/8, or 5.6%, to 63 1/4 on volume of 11.4 million shares, compared with average daily volume of 10.1 million.
Worries focused on inventory and bills outstanding, which raise questions about whether the company is as strong as it seems. There were concerns that revenue growth could stumble. Such fears are unfounded, Sagawa said.
Lucent made progress in whittling down inventory backlog and making production more efficient, said Credit Suisse First Boston Corp. analyst James Parmelee, who also said a reorganization the company announced along with earnings could speed operations.
Lucent redrew itself into four core units: networks for communications companies; networks for large businesses and government; chips and communications technologies; and consulting.
"This should facilitate Lucent competing in Internet time," Parmelee said.
There has been speculation that the realignment will lead to layoffs, analysts said. The company will hold a conference call that is closed to the press later Tuesday morning.
Along with the reorganization, Chief Operating Officer and Bell Labs President Dan Stanzione was named special adviser to Chairman and Chief Executive Richard McGinn. Stanzione will relinquish his Bell Labs job to Arun Netravali, who is currently executive vice president of research.
Analysts said they expect Lucent to be bullish about first quarter and fiscal 2000 forecasts.
Goldman, Sachs & Co. analyst Mary Henry said in an early-morning research note that the company's tone should be clear and positive, with no sweeping layoff announcement. The company will hold a meeting with analysts Nov. 11 that could provide a catalyst for the stock as analysts gain confidence in growth projections, Henry said.
She said the reorganization announcement should end recent speculation about the firm. Stanzione, she said, was very popular on Wall Street, and his reduced operational role comes unfortunately close on the heels of top executive Carly Fiorina's departure to become chief executive of Hewlett-Packard Co. (HWP). However, Henry noted that the restructuring brings greater roles to several already-prominent executives, including Pat Russo, who will assume Fiorina's job and more.
Results for the fourth quarter included continued growth in overseas sales, one of Lucent's goals, and good expense control.
Sales, general and administrative costs shrunk to 21.3% of revenue from 23% a year ago.
Gross margins didn't quite live up to expectations, slipping to 46% of revenue from 48.2% a year ago. That's because sales included less high-margin software than usual and because the company reclassified some research and administrative expenses so that they became part of the margin calculation, analysts said. The analysts viewed the software issue as an anomaly.
Sagawa of Sanford C. Bernstein & Co. said he is less concerned with the gross margin number than with operating margin, which expanded to 14% from 12.7% a year ago.
With the exception of the business communications unit, Lucent's individual units posted strong growth. Business communications revenue, which includes call-center equipment, was essentially flat at $2.47 billion.
"The company still needs to address the sluggish growth in the enterprise business, since it is almost 25% of the business that isn't growing right now," Henry said.
The core systems for network operators posted revenue of $6.92 billion, while the microelectronics products division, which makes specialized semiconductors, posted revenue of $991 million, up 22% from a year ago.
The First Call/Thomson Financial consensus estimate is that Lucent will earn 55 cents a diluted share from continuing operations in the first fiscal quarter and $1.51 in fiscal 2000.
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