story from Reuters on earnings from a few days ago, adds a few tidbits to previous stories.
UPDATE 3-Alcatel results magnify sector worries; shares fall
Thu Jul 28, 2011 6:08am EDT
* Q2 adjusted op profit 108 mln vs consensus 145 mln euro
* Q2 revenue 3.9 bln euro vs consensus 4 bln euros
* Sticks to annual targets on margin, positive cash flow
* Cash burn in Q2 as operating costs climb
* Shares down more than 9 pct
By Leila Abboud
PARIS, July 28 (Reuters) - Telecom gear maker Alcatel-Lucent SA ( ALUA.PA) reported weaker-than-forecast results, magnifying concerns about a sector-wide slowdown and sending shares down more than 9 percent.
The Franco-American company also rapidly burned through cash, showing it is still struggling to generate stable profits in the final stretch of Chief Executive Ben Verwaayen's three-year turnaround plan.
The group, which competes with market leaders Ericsson and China's Huawei [HWT.UL], nevertheless confirmed its annual goals of outgrowing the market, hitting an operating margin of above 5 percent and being free cash flow positive.
The disappointing second quarter comes after Alcatel-Lucent started the year strongly by riding a wave of operator spending in the United States. [ID:nLDE7441QL]
It also comes amid increasing investor jitters about a possible second-half slowdown in the telecom gear sector, especially in the United States.
Shares of market leader Sweden's Ericsson ( ERICb.ST), Juniper ( JNPR.N) and Cisco ( CSCO.O) were all punished after reporting weak results. [ID:nN1E76P240] [ID:nN1E76Q188] [ID:nN11260314]
"The outlook seems challenging when one looks at peers' results published over last few days," said Pohjola analyst Hannu Rauhala in Helsinki.
Alcatel-Lucent CEO Ben Verwaayen downplayed concerns of an United States slowdown, saying he expected sales there to continue to be strong in the second half of the year.
"We have a very broad product base in the United States and many customers there," he said. "We are on track on our goals for the year and are growing where the market is growing."
Revenue in the second quarter was up 2.4 percent to 3.9 billion euros ($5.6 billion) compared with a year earlier, and adjusted operating income was 108 million.
Revenue was largely in line with analysts' average expectation of 4 billion euros, but adjusted operating profit was considerably below consensus of 145 million, according to Thomson Reuters I/B/E/S.
The company also posted a net profit of 43 million euros this quarter after a loss last year.
Alexander Peterc, an analyst at Exane BNP Paribas, said the top-line results were a bit weak and adjusted operating profit well below consensus, despite strong sales in the United States and Asia.
"The targets for the year are still in reach," said Peterc. "We are not in the danger zone yet, but the second half has to go well and the macroeconomic environment isn't great."
TURNAROUND PLAN
Alcatel-Lucent has been riding a wave of investments by U.S. operators in like AT&T and Verizon this year, boosting its results and leading some investors to bet that Verwaayen has gotten the company on the right track after a painful merger.
Before today's results, Alcatel-Lucent's shares were up around 55 percent this year, compares with Ericsson's 10 percent rise.
At 9:13 GMT, shares in Alcatel-Lucent were down 9 percent to 3.07 euros per share, compared with an 1.7 percent drop in the European sector .SX8P.
Alcatel-Lucent has better margins in the U.S. market because it is effectively closed to low-cost Chinese vendors like Huawei and ZTE Corp ( 000063.SZ) who have been kept out of major operators' networks over security concerns.
Sales in North America in the second quarter were up 4.4 percent to 1.55 billion euros.
In the second half, Alcatel-Lucent will likely be hurt by Verizon's plan to dial back spending on its wireless network, but helped by AT&T's plan to increase investments by a billion dollars and Sprint's buildout, said analyst Alexander Peterc.
But even strong sales in the U.S. may not resolve Alcatel-Lucent's long-standing problem of cash burn. The company saw free cash flow of negative 350 million in the second quarter, and negative 213 million in the first quarter.
Nevertheless, Chief Financial Officer Paul Tufano said the company remained "very committed" to its goal of reaching positive free cash flow goal for 2011.
"We made modest progress in reducing inventory and expect to accelerate that in second half," he said. "We remain very focused on making that target."
Alcatel-Lucent is mulling the sale of its enterprise business, which could bring in around $1 billion, but Verwaayen declined to comment on when a decision would be made. [ID:nL6E7I61N5] [ID:nLDE76J12C]
"I am pretty relaxed on the process itself," he said. (Additional reporting by Tarmo Virki; Editing by David Holmes and Christian Plumb) |
