Ciena (CIEN) Q4 Earnings Miss Estimates, Revenues Beat

Ciena Corp. CIEN reported fourth-quarter fiscal 2016 results. While adjusted earnings (excluding all one-time items but including stock-based compensation) of 38 cents per share missed the Zacks Consensus Estimate of 39 cents, revenues of $716.2 million easily topped the consensus mark of $715.9.

Moreover, on a year-over-year basis, earnings and revenues grew 40.7% and 3.5%, respectively.

Management stated that revenue growth was driven by robust performance in the APAC region (especially in India and sale of submarine applications). Also, excluding AT&T contract, sales were impressive across Europe, Middle East and Africa (EMEA) and North America.

Quarterly Details

Product revenues (81.3% of revenues) were up 1.4% year over year to $582.5million. Services revenues (18.7% of revenues) increased 13.6% year over year to $133.7 million.

Segment-wise, networking platforms (79% of total revenue) inched up 0.3% year over year to $566.2 million. Revenues from Software and software-related services (5.3% of total revenue) soared 43% year over year to $37.6 million. Global services revenues (15.7% of total revenue) grew 11.3% from the year-ago quarter to $112.4 million.

Region-wise, Ciena’s sales fell 3.5% in North America but increased 19.7% in EMEA, 29.7% in Asia Pacific and 2.4% in Caribbean and Latin America.

CIENA CORP Price, Consensus and EPS Surprise

CIENA CORP Price, Consensus and EPS Surprise | CIENA CORP Quote

U.S. customers continue to provide for 61% of its revenues, of which 10% was contributed by one customer only. Moreover, the fiscal fourth quarter saw the highest ever backlog of $1.5 billion and the highest number of incoming orders for the company.

The company’s adjusted gross margin expanded 40 basis points (bps) year over year to 45.1% while adjusted operating margin expanded 170 bps to 11.4%.

Balance Sheet

The company ended the fiscal with cash and investments of $1.14 billion and long-term debt of approximately $1.03 billion.

Ciena generated solid operating cash flow of $289.5 million in fiscal 2016 compared with approximately $262.1million generated in fiscal 2015.

Guidance

Ciena also provided its guidance for first-quarter fiscal 2017. Revenues for the fiscal first quarter are forecast in the range of $615–$645 million. Non-GAAP gross margin is projected to be approximately in the mid-40% range. Non-GAAP operating expenses areprojected to be in the range of $220 million to $225 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. In the submarine cable upgrade market, Ciena occupies a leading position. It recorded growth in the Caribbean and Latin American market in the fiscal fourth quarter and the trend islikely to continue in 2017.

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.

Ciena carries a Zacks Rank #3 (Hold). Year to date, Ciena shares have underperformed the broader market. Shares are up 4.40% compared with 57.07% growth in Zacks Fiber Optics Industry.

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

Cirrus Logic has witnessed upward estimate revisions in the last 60 days and has surpassed the Zacks Consensus Estimate thrice in the trailing four quarters with an average positive surprise of 53.68%.

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