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Ciena (CIEN) Misses Earnings and Revenue Estimates in Q1

Ciena Corp. CIEN reported dismal first-quarter fiscal 2017 results. Both adjusted earnings (excluding all one-time items but including stock-based compensation) of 18 cents per share and revenues of $621.5 million missed the Zacks Consensus Estimate of 20 cents and $632.6 million, respectively. Shares fell over 8% following the announcement.

However, on a year-over-year basis, revenues grew 8.4%.

Quarterly Details

Product revenues (81.5% of revenues) were up 10.8% year over year to $507 million. Services revenues (18.5% of revenues) decreased nearly 1% year over year to $114.5 million.

Segment-wise, networking platforms (78.8% of total revenue) grew 9% year over year to $490 million. Revenues from Software and software-related services (6.3% of total revenue) soared 54.7% year over year to $39.3 million. Global services revenues (14.9% of total revenue) declined 6.1% from the year-ago quarter to $92.2 million.

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Region-wise, Ciena’s sales grew 3.4% in North America, 13.4% in EMEA, 59% in Asia Pacific but fell 19.6% in Caribbean and Latin America.

U.S. customers accounted for 61.1% of its revenues, of which 10% was contributed by two customers each.

Ciena Corporation Price, Consensus and EPS Surprise

Ciena Corporation Price, Consensus and EPS Surprise | Ciena Corporation Quote

The company’s adjusted gross margin expanded 20 basis points (bps) year over year to 44.9% while adjusted operating margin expanded 20 bps to 8.5%.

Balance Sheet

The company ended the fiscal with cash and investments of $1.05 billion and long-term debt of approximately $1.02 billion.

Ciena generated solid operating cash flow of $26.3 million in the quarter compared with approximately $15 million generated in the prior-year quarter.

Guidance

Ciena also provided its guidance for second-quarter fiscal 2017. Revenues for the current quarter are forecast in the range of $680–$710 million. Non-GAAP gross margin is projected to be approximately in the mid-40% range. Non-GAAP operating expenses are projected to be $240 million.

Our Take

Ciena’s revenues are expected to benefit from growing demand for packet-optical transport and switching products, integrated network and service management software. Also, Ciena remains positive about its North America business. The company anticipates overall global market to improve in mid-single digits.

Ciena’s Wave Server continues to expand the company's customer base and the trend is likely to continue in 2017. Management expects WaveServer revenues to be at the high end of the expected revenue range of $50 to $100 million in the fiscal.

In the submarine cable upgrade market, Ciena occupies a leading position.

Moreover, the Verizon project remains a long-term growth driver along with higher number of orders from international customers, its Tier 1 contract wins and robust backlog. Ciena’s focus on cost-cutting initiatives is also expected to boost its bottom line.

Nonetheless, Ciena’s highly leveraged balance sheet may affect its profitability. The company is also likely to be affected by global macroeconomic uncertainty and intense competition from Cisco CSCO, Juniper Networks JNPR and others.

Zacks Rank & Share Price Movement

Ciena carries a Zacks Rank #3 (Hold). Year to date, Ciena shares have underperformed the broader market. Shares are up 37.36% compared with 78.03% growth of theZacks Fiber Optics industry.

Stock to Consider

A better-ranked stock in the broader technology sector is Tech Data Corp. TECD, sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

In the trailing four quarters, Tech Data has yielded positive average earnings surprises of 8.73%.

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Cisco Systems, Inc. (CSCO): Free Stock Analysis Report
 
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