Adtran (ADTN) Down 16% Since Last Earnings Report: Can It Rebound?

A month has gone by since the last earnings report for Adtran (ADTN). Shares have lost about 16% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Adtran due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

ADTRAN Q4 Loss Narrower Than Expected, Revenues Fall Y/Y

ADTRAN reported unimpressive fourth-quarter 2019 results wherein the top line decreased on a year-over-year basis.

Net Loss

On a GAAP basis, net loss for the December quarter was $12.7 million or loss of 26 cents per share compared with loss of $8.4 million or loss of 18 cents per share recorded in the year-ago quarter. The deterioration was primarily due to significant income tax benefit in the prior-year quarter and lower revenues in the reported quarter. In 2019, net loss was $54 million or loss of $1.13 per share compared with loss of $19.3 million or loss of 40 cents per share in 2018.

Quarterly non-GAAP net loss came in at $3.2 million or loss of 7 cents per share compared with loss of $5.8 million or loss of 12 cents per share in the prior-year quarter. The bottom line was narrower than the Zacks Consensus Estimate of loss of 13 cents. Non-GAAP net earnings in 2019 were $4.7 million or 10 cents per share against net loss of $16.4 million or loss of 34 cents per share a year ago.

Revenues

Quarterly revenues were $115.8 million compared with $140.1 million in the year-earlier quarter and surpassed the consensus estimate of $113 million. The decline was attributable to lower sales at Products, which fell 17.7% year over year to $96.2 million. Sales from Services were $19.6 million, down 15.7%. However, full-year revenues increased 0.1% to $530.1 million from $529.3 million driven by strong revenues in Services segment. Markedly, ADTRAN witnessed significant growth in its international business.

Other Details

Total cost of sales declined from $84.7 million to $68.7 million. Gross profit came in at $47 million compared with $55.4 million in the prior-year quarter. Operating loss for the fourth quarter was $15.1 million compared with operating loss of $3.8 million posted a year ago.

Notably, the company communicated that its board of directors has announced a quarterly cash dividend of 9 cents per share to shareholders on record as of Feb 20, payable on Mar 5.

Cash Flow & Liquidity

In 2019, ADTRAN utilized $41 million of net cash for operating activities against $55.5 million generated a year ago. As of Dec 31, 2019, the networking equipment maker had $76.2 million in cash and equivalents with $46 million of non-current liabilities compared with the respective tallies of $105.5 million and $33.8 million a year ago.

Going Forward

ADTRAN continues to optimize its customer, geographic and product diversity momentum as communications service providers scale up their network capabilities. The company is likely to benefit from its comprehensive portfolio of software-defined access, fiber extension and 10G PON solutions, particularly in Europe. This apart, its strategy of diversification across the globe along with technological advancements instills optimism.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -109.52% due to these changes.

VGM Scores

At this time, Adtran has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with a D. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. Notably, Adtran has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.