Tellabs Inc. (TLAB) reported disappointing third quarter 2011 financial results, falling short of the Zacks Consensus Estimate.
Lower revenue from North America primarily led to the poor performance in the quarter, partially offset by higher international revenue. All the three reporting segments of Tellabs witnessed sales reductions.
Third Quarter Highlights
Total revenue of $313.8 million was down 27% year over year and missed the Zacks Consensus Estimate of $335 million. The year-over-year decline in total revenue was due to poor performance from North America, partly mitigated by higher international revenue.
On a GAAP basis, net loss in the third quarter of 2011 was $138.2 million or a loss of 38 cents per share compared with a net income of $56.8 million or an income of 15 cents per share in the prior-year quarter. Adjusted (excluding special items) loss per share of 2 cents was in line with the Zacks Consensus Estimate.
GAAP gross margin was 40.8% compared with 50.2% in the year-ago quarter. Substantial decline in gross margin was mainly attributable to higher cost of revenue for the Product segment.
Agreements of Analysts
Of the 15 analysts covering the stock in last 7 days, none revised their estimates for the fourth quarter of fiscal 2011. Likewise, for the first quarter of fiscal 2012, out of the 13 analysts covering the stock in the last 7 days, none revised their estimates.
Similarly, for fiscal 2011, in the last 7 days, out of the 15 analysts covering the stock, none revised their estimates upward or downward. Also, for 2012, in the last 7 days, none of the 16 analysts covering the stock revised their estimates upward or downward.
Currently, the Zacks Consensus EPS Estimate for the fourth quarter of fiscal 2011 is pegged at a loss of 1 cent. The projected negative annual growth is 166.67%. Similarly, for the first quarter of 2012, the current Zacks Consensus EPS Estimate of a loss of 2 cents indicates a year-over-year loss of 55.38% year over year.
Magnitude of Estimate Revisions
During the last 7 days, the Zacks Consensus Estimates for fourth quarter 2011 and first quarter of 2012 were in line with the current estimates of a loss of 1 cent and 2 cents per share, respectively. Likewise, for fiscal 2011 and 2012, the Zacks Consensus Estimates were at par with the current estimates of a loss of 11 cents and 2 cents per share, respectively.
Earning Surprises
Tellabs did not produce any earnings surprise in the last quarter. There is a downside potential (essentially a proxy for future earning surprises) of 100.00% for the ongoing quarter and 50.00% in the upcoming quarter. For fiscal 2011 and 2012, the Zacks Consensus Estimates downside potentials are 0.00% and 50.00%, respectively.
Our Recommendation
Increasing competition in the core wireless backhaul solutions segment will likely put the company on the back foot, in our view. Tellabs has already lost a significant amount of business from its most important customer AT&T (T). Moreover, continuous fall in comparable store sales is also concerning for the analysts to hold an extremely cautious outlook.
We, thus, maintain our long-term Underperform recommendation for Tellabs. Currently, Tellabs has a Zacks#3 Rank, implying a short-term Hold rating on the stock.
About Earnings Estimate Scorecard
Len Zacks, PhD in mathematics from MIT, proved over 30 years ago that earnings estimate revisions are the most powerful force impacting stock prices. He turned this ground breaking discovery into two of the most celebrating stock rating systems in use today. The Zacks Rank for stock trading in a 1 to 3 month time horizon and the Zacks Recommendation for long-term investing (6+ months). These “Earnings Estimate Scorecard” articles help analyze the important aspects of estimate revisions for each stock after their quarterly earnings announcements. Learn more about earnings estimates and our proven stock ratings at: http://www.zacks.com/education/
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