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Why Is Adtran (ADTN) Down 9.2% Since Last Earnings Report?

It has been about a month since the last earnings report for Adtran (ADTN). Shares have lost about 9.2% 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 Beats on Q3 Earnings, Misses Revenue Estimates

ADTRAN reported relatively modest third-quarter 2018 results with both the top line and bottom line deteriorating year over year. However, non-GAAP earnings comfortably beat the Zacks Consensus Estimate, although revenues missed the same.

Net income for the quarter was $7.6 million or 16 cents per share compared with $15.9 million or 33 cents per share in the year-ago quarter. The year-over-year decrease in GAAP earnings was primarily due to decline in revenues. Excluding non-recurring items, non-GAAP earnings for the reported quarter were 21 cents per share compared with 37 cents in the year-earlier quarter. Non-GAAP earnings exceeded the Zacks Consensus Estimate by 18 cents.

Total revenues for the third quarter were $140.3 million compared with $185.1 million in the prior-year quarter and missed the Zacks Consensus Estimate of $146 million. The year-over-year decrease in revenues was primarily attributable to lower shipments to a Tier-1 customer. Sales at both the segments, namely Products and Services, decreased 16.8% and 51.3%, respectively, on a year-over-year basis to $121 million and $19.3 million.

Domestic revenues were up 23% sequentially to $83.7 million, while international revenues increased 52% year over year to $56.6 million.

Quarterly GAAP gross margin came in at 41.6% compared with 46.7% in the prior-year period due to decreased volume of domestic business and higher weightage of international business. Operating loss in the reported quarter totaled $2.2 million against operating income of $18.2 million a year ago largely due to lower revenues.

Cash flow from operating activities for the first nine months of 2018 totaled $48.7 million compared with $22 million in the year-ago period. ADTRAN exited the quarter with cash and cash equivalents of $94.2 million. The company repurchased 88,000 shares for $1.4 million during the quarter and maintained its dividend of 9 cents per share.

ADTRAN expects improved performance in the coming quarters with continued strength in the European business and a rebound in its North American carrier and cable/MSO business. For fourth-quarter 2018, the company expects revenues to be around $135 million with GAAP gross margin of approximately 40%.

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 -375% due to these changes.

VGM Scores

At this time, Adtran has an average Growth Score of C, however its Momentum Score is doing a lot better with an A. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the top 40% 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 these revisions 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.


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