Could Ciena Outlook Temper Enthusiasm for Earnings Beat?

On a GAAP basis, the company reported a net loss of $18.8 million ($0.17 per share), which is slightly worse than the reported loss of $0.15 per share in the same period a year ago. Share-based compensation expenses and amortization of intangible assets are the major reasons for the posted loss.

For the fiscal second quarter ending in April, Ciena is forecasting revenues in a range of $585 million to $615 million and adjusted gross margin of 42% to 43%. Adjusted gross margin in the first quarter totaled 44.1%.

Ciena is also forecasting adjusted operating expenses at approximately $210 million, compared with a first quarter total of $197.3 million.

Consensus estimates for the second quarter call for EPS of $0.20 on revenues of $597.17 million.

While the revenue estimate appears to be in line with the analysts’ estimate, it is pretty hard to figure that the EPS estimate will be reached. Lower gross margin and higher expenses rarely translate into increased net income.

Sales in the company’s largest division, converged packet optical equipment, rose about 1% from $333.4 million to $336.6 million year-over-year, approximately 64% of Ciena’s total revenues.

Sales outside the United States comprised 37.4% of total sales, and one customer, AT&T Inc. (NYSE: T), accounted for 22% of total revenue.

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The company’s CEO said:

Our first quarter performance is highlighted by continued customer diversification, an expanding portfolio, and strong profitability. While order timing and foreign exchange headwinds impacted revenue in the quarter, we delivered improved gross margin and excellent operating profit.

The earnings beat is likely to push the shares higher Thursday, but the outlook does not appear to be strong enough to push earnings to the level analysts expect for the current quarter.

Thursday’s premarket session had Ciena trading up about 2%, at $21.02 in a 52-week range of $13.77 to $27.16. Thomson Reuters had a consensus analyst price target of $24.20 before the results were announced.