FOCUS-Nortel operating profit beats forecast
TORONTO, July 27 (Reuters) - Nortel Networks Corp. squeezed an operating profit out of its second quarter on Tuesday that was slightly higher than what analysts had in mind for the big communications equipment maker.
Earnings on operations were $368 million or 55 cents a share in the second quarter versus a year-earlier $212 million or 40 cents a share.
Brampton, Ontario-based Nortel is one of the world's largest equipment makers dealing with the transfer of data, voice and video over telecommunications lines.
Analysts, polled by First Call research house in New York, had forecast average earnings of 50 cents a share.
One analyst, who declined to be identified, said the bottom line was pumped up slightly due to a reduction in taxes.
Chief Executive John Roth said U.S. tax accounting for stock options exercised by employees was treated in a fashion that allowed an increase of roughly 3 cents a share.
Roth told Reuters he was pleased with earnings. "What was really pleasing was what drove that. What drove that is our continued leadership in optical."
Nortel's equipment-making business includes the booming optical networking sector.
But in the quarter, Nortel also had costs related to last year's takeover of Bay Networks worth $509 million, along with one-time pretax restructuring charges of $62 million and one-time gains of $57 million related to the disposition of its investment in Juniper Networks .
Once those were factored in, Nortel lost $145 million or 21 cents a share, compared with last year's bottom line loss of $7 million or 1 cent a share.
The company reported results after the major North American stock markets closed on Tuesday. Nortel shares fell 65 Canadian cents to C$127 on the Toronto Stock Exchange. In New York, the stock dipped 13 cents to $84.69.
"I think they produced a very solid quarter," said Christopher Stix, analyst at SG Cowen. "A nice turnaround in wireless."
Nortel's wireless equipment business would still post growth of under 20 percent for the year despite a slight shrinkage in the first quarter, Roth said.
Stix added the tax situation was expected to extend to year-end.
Another analyst, who declined to be identified, said that "the quarter was pretty much what people expected."
Roth also said that optical networking was growing at such a quick pace it meant the company was shipping incomplete systems due to component shortages.
Roth added that the year 2000 computer bug -- once 1999 ends, computers and chips could read 2000 as 00 or 1900, causing problems -- was a smaller concern than it had been.
"I feel a lot better about the range of impact Y2K could have had on Nortel in the second half," because most big companies seemed well on their way to readiness, he said.
Roth also addressed some rumors. He said that Nortel had not been in talks with JDS Uniphase Corp. over selling its optical networking unit to the components maker. Nor did it have any discussions with Telefon AB L.M. Ericsson , as had been speculated earlier this year, he said.
But Nortel added charges related to last year's takeover of Bay Networks and one-time gains and charges. Once those were factored in, Nortel lost $145 million, or 21 cents a share, compared with last year's loss of $7 million, or 1 cent a share.
Chief Executive John Roth said he was pleased with the results. "What was really pleasing was what drove that; what drove that is our continued leadership in optical."
Nortel's equipment-making business includes optical networking, which it sees a sector with significant growth prospects.
One analyst, who declined to be identified, pointed out that the bottom line was slightly pumped up due to a reduction in taxes. Roth said U.S. tax accounting for stock options exercised by employees was treated in a fashion that allowed an increase of roughly 3 cents a share.
The company reported results after the major North American stock markets closed. On Tuesday Nortel shares fell 65 Canadian cents to close at C$127 on the Toronto Stock Exchange. In New York, the stock dipped 13 cents to $84.69.
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Record Second Quarter Results Reported by Nortel Networks
PR Newswire - July 27, 1999 16:33
- Revenues Up 30% to US$5.41 Billion
- Net Earnings from Operations up 74% to US$368 Million
- EPS From Operations Up 37% to US$0.55
BRAMPTON, ON, July 27 /PRNewswire/ - Nortel Networks(x) (NYSE/TSE: NT) today reported results for the second quarter and first six months of 1999.
Revenues increased 30 percent to US$5.41 billion for the second quarter of 1999 from US$4.16 billion for the same period in 1998. Net earnings from operations applicable to common shares (a) for the quarter were US$368 million, or US$0.55 per share, compared to US$212 million, or US$0.40 per share, for the same period in 1998, an increase in EPS from operations of 37 percent. Including Acquisition Related Costs (a) and one-time gains and charges, Nortel Networks recorded a net loss applicable to common shares in the second quarter of 1999 of US$145 million or US$0.21 per share.
''I am pleased with our strong growth in the quarter across our Carrier segment in North America, Europe and Asia Pacific'', said John Roth, vice-chairman and chief executive officer, Nortel Networks. ''Our first mover strategy and focus on delivering a new era of networking has translated into strong market momentum and overall solid financial performance for the quarter. Highlights included:
- Continued strong demand from existing and new carriers and service
providers for our optical, access and Internet Protocol (IP) networking
capabilities. Announcements during the past 90 days included the
selection of Nortel Networks by Telstra to provide the IP networking
portion of its next generation network; Qwest Communications extending
its alliance with Nortel Networks, becoming the first company in North
America to deploy the OPTera(x) portfolio of Optical Internet technology;
and a contract with NTT in Japan to provide Internet access solutions.
- Recovery of momentum in the sales of mobility systems in the second
quarter with wins in the United States, China, Taiwan, Canada, and
Australia. We announced awards for mobility systems in the first six
months valued in excess of US$3.0 billion. We continued to build our
Succession(x) solution capabilities to support wireline/wireless
integration to enable a Wireless Internet.
- Interest in Succession, the first non-proprietary solution to enable
carriers to transition from circuit to packet networks, remained strong.
MCI WorldCom was added to the list of customers trialing Succession for
the continued evolution of its network from narrowband to broadband.
Other customers trialing Succession include AT&T, France Telecom, and
SBC.
- Several new products were released during the quarter providing a good
foundation for future growth. These included the launch of the
Passport(x) 15000, the Versalar(x) Switch Router 25000 (a carrier grade
high-speed routing switch), and the second-generation Contivity(x)
extranet switches. Nortel Networks Internet Telephony strategy for
enterprises was also introduced, which is founded on our Internet
Communications Architecture (Inca(x)), an IP architecture based on open
standards that unifies telephony and data. This introduction included
several new products and enhancements to Symposium(x), CallPilot(x),
Meridian1(x)/SL-100(x) and Passport Multi-Service solutions.''
''Looking forward, these highlights, strong customer acceptance and a market leading portfolio, which is well positioned in emerging high growth segments, is positioning our customers to meet their network requirements into the next millennium'', said Roth.
Revenue Breakdown
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Segment revenues for the second quarter increased 21 percent for the Carrier segment and 74 percent for the Enterprise segment over the same period in 1998. Revenues in the ''Other'' segment declined in the quarter compared to the second quarter of 1998 primarily due to the impact of dispositions.
Carrier segment revenues reflected continued strong increases in optical networks and our broad access solutions portfolio across the United States, Europe and Asia Pacific. Sales of mobility systems increased significantly with higher revenues in Asia Pacific more than offsetting a decline in Latin America. Overall, the Carrier segment experienced significant growth in the United States, Europe and Asia Pacific.
Enterprise segment revenues increased substantially in the quarter, primarily driven by the increase in enterprise data revenues due to the Bay Networks merger. Sales of enterprise applications also increased in the United States and Europe more than offsetting a decline in Canada. Overall, the Enterprise segment experienced substantial growth in the United States, Europe and Asia Pacific.
Geographic revenues for the second quarter of 1999 increased 28 percent in the United States and 40 percent in Canada over the second quarter of 1998. The 32 percent growth outside Canada and the United States was driven by significant increases in both Europe and Asia Pacific, partially offset by a decline in CALA.
The overall increase in net earnings from operations for the quarter was driven by revenue growth, higher gross margins and a decrease in the effective tax rate.
The second quarter 1999 loss specifically included one-time pre-tax gains of US$57 million (primarily related to the disposition of the investment in Juniper Networks), one-time pre-tax charges of US$62 million (primarily related to the realignment and resizing of certain of Nortel Networks operations) and Acquisition Related Costs of US$509 million (primarily related to the Bay Networks intangible assets).
Six-Month Results
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For the first half of 1999, revenues increased 28 percent to US$9.83 billion from US$7.67 billion for the same period in 1998. Net earnings from operations applicable to common shares (a) for the first half were US$590 million, or US$0.88 per share, compared to US$352 million or US$0.67 per share, for the same period in 1998, an increase in EPS from operations of 31 percent. Including Acquisition Related Costs and one-time gains and charges, Nortel Networks recorded a net loss of US$615 million, or US$0.92 per share, for the first half of 1999.
Expenses
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Selling, general and administrative expenses (''SG&A'') in the quarter were US$1.04 billion, or 19.2 percent of revenue, compared with US$723 million, or 17.4 percent of revenue, in the second quarter of 1998. For the first half of 1999, SG&A expenses were US$1.89 billion, or 19.3 percent of revenue, compared with US$1.34 billion, or 17.4 percent of revenues, in the first half of 1998. The increased SG&A expenses primarily reflected the higher SG&A expenses associated with Enterprise operations that have traditionally higher spending levels, increased levels of customer financing activity and investments to support Nortel Networks enhanced global marketing programs.
Research and development expenses (''R&D'') were US$701 million, or 13.0 percent of revenue, in the quarter, compared with US$610 million, or 14.7 percent of revenue, in the second quarter of 1998. For the first half of 1999, R&D expenses were US$1.37 billion, or 13.9 percent of revenues, compared with US$1.19 billion, or 15.5 percent of revenue, in the first half of 1998. The increased R&D investments reflected planned increases in the Carrier and Enterprise businesses focused on data networking and IP technologies.
Nortel Networks delivers value to customers around the world through Unified Networks(x) solutions, spanning mission-critical telephony and IP-optimized networks. Customers include public and private enterprises and institutions; Internet service providers; local, long-distance, cellular and PCS communications companies; cable television carriers; and utilities.
Nortel Networks' common shares are listed on the New York, Toronto, Montreal, Vancouver, and London stock exchanges. Nortel Networks had 1998 revenues of US$17.6 billion and has approximately 76,000 employees worldwide.
Certain information included in this press release is forward-looking and is subject to important risks and uncertainties. The results or events predicted in these statements may differ materially from actual results or events. Factors which could cause results or events to differ from current expectations include, among other things: the impact of price and product competition; the dependence on new product development; the impact of rapid technological and market change; the ability of Nortel Networks to integrate the operations and technologies of acquired businesses in an effective manner; general industry and market conditions and growth rates; international growth and global economic conditions, particularly in emerging markets and including interest rate and currency exchange rate fluctuations; unanticipated impact of Year 2000 issues; and the impact of consolidations in the telecommunications industry. For additional information with respect to certain of these and other factors, see the reports filed by Nortel Networks with the United States Securities and Exchange Commission. Nortel Networks disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. |
