=DJ Redback Down-3: Co. Struggles With Clients' Cost Cutting
Investors were anticipating an analyst conference call which was
widely thought to be a company announcement that Redback would be
acquired
With rumors flying, the company's stock enjoyed a three-day, 27% run
up.
But during the conference call Wednesday, Redback's Chief Financial
Officer Dennis Wolf said the company would fall short of earnings
expectations - a statement which took investors by surprise and caused
them to immediately unload their stock.
Citing an "unprecedented downturn in the telecommunications
marketplace," Wolf said the company expected a pro forma loss of 27
cents to 32 cents a share for its fiscal second quarter.
Wall Street had expected the company to post a loss of 11 cents a
share for the second quarter and 30 cents for 2001.
The company did not provide guidance beyond the second quarter, but
Wolf said he would do so in a conference call following the release of
Redback Networks' second-quarter results.
In pre-market trading Thursday shares of Redback were down 17% and
they have yet to recover in regular hours.
A Deutsche Bank Alex. Brown analyst asserted that Redback's earnings
situation is emblematic of a slowdown in spending by the telecom
sector as a whole.
In a research note, analyst George Notter said the Redback earnings
miss is "indicative of the worsening capital spending environment and
very consistent with large earnings misses at Nortel and Tellabs over
the last several weeks."
Notter added that the sector is grappling with ways to implement
pragmatic ways to "increase network utilization to meet current
bandwidth requirements," while "reducing and deferring capital
expenditures." In such a belt-tightening environment the impact on
Redback's bottom line could be negative.
Citing the "size of the shortfall and worsening outlook for capital
spending," Notter, the Deutsche Bank analyst, downgraded Redback stock
to a market perform from a buy.
Further, Notter revised his estimates to a loss of 90 cents a share
from a loss of 18 cents for 2001, and a loss of 15 cents a share from
his previous estimate of a profit of 30 cents for 2002.
Adams Harkness & Hill also reduced its rating on the stock to market
perform from buy and ABN AMRO cut Redback's stock to hold from add.
Standard & Poor's affirmed its B-minus credit rating on the company,
saying "the rating reflects the company's very narrow business base in
a competitive, pressured market."
No Redback official was immediately available for comment.
Redback Networks, San Jose, Calif., makes broadband equipment for
telecommunications companies.
-Adam L. Freeman, Dow Jones Newswires; 201-938-5023;
adam.freeman@dowjones.com |
