Alcatel-Lucent (ALU - Analyst Report) reported adjusted loss of 3 cents per American Depositary Share (“ADS”) for first-quarter 2015, which was wider than the Zacks Consensus Estimate of a loss of 2 cents but narrower than the prior-year quarter loss of 4 cents.
The dismal bottom-line performance was mainly led by a considerable decline in spending in the North American market. This apart, higher income tax rate and rise in cost of sales contributed to the overall fall.
Inside the Headlines
Revenues came in at €3,235 million ($3650.1million), an increase of 9.2% year over year. The top line also beat the Zacks Consensus Estimate of $3,442 million.
Growth in revenues was driven by the company’s effective execution of the Shift plan, which led to a consistent improvement in margins and free cash flow. Also, enhancement in segmental revenues and strong sales in most of the geographies added to the revenue growth.
Going by geographies, despite softness in the North American market, revenues excluding LGS increased 11%. Revenues from Europe and Asia-Pacific were up 7% and 20%, respectively. Also, the company witnessed growth in the Rest of World, with revenues increasing 5% year over year.
As per the segments, Core Networking revenues increased 7% year over year to €1,450 million ($1636 million). This was driven by a year-over-year rise in all three sub-segmental revenues, IP Routing (6%), IP Transport (8%) and IP Platforms (7%).
On the other hand, revenues in the Access segment increased 13% year over year to €1,782 million ($2010.6 million). This was attributable to year-over year improvement in revenues of Wireless Access (19%) and Fixed Access (10%) sub-segments. Nevertheless, Managed Services revenues dropped 21%, while Licensing revenues remained flat on a year-over-year basis.
Gross margin for the quarter increased 230 basis points (bps) year over year to 34.6%.
Liquidity & Cash Flow
Alcatel-Lucent ended the quarter with marketable securities, cash and cash equivalents of €5,933 million ($6437.3 million) compared with €5,550 million as of Dec 31, 2014. The company’s long-term debt as of Mar 31, 2015 stood at €5,184 million ($5624.6 million), compared with €4,875 as of Dec 31, 2014. Total equity of €2,995 ($3249.6 million) at Mar 31, 2015 exceeded the prior-quarter tally of $2,694 million.
The company reported negative free cash flow of €332 million ($374.6 million) for the quarter, reflecting an improvement of $66 million from negative cash flow of €398 million recorded in first-quarter of 2014.
Our Take
Alcatel-Lucent witnessed a challenging quarter mainly on account of spending cuts in North American markets. However, there is no denying the fact that the company’s Shift Plan is trending the right track and has been a significant driver of profitability. Additionally, in the first quarter, the company achieved cumulative fixed cost savings of about €668 million ($834.3 million) under the Shift Plan that has been entirely reinvested in marketing and R&D initiatives to enhance the diversification strategy.
Moreover, Alcatel-Lucent remains highly confident regarding its recent decision to merge with Nokia. Management feels the development will be a game changer, as the combined strength of two companies would help it become an innovation leader in next-generation technology and services industry (read more: Alcatel-Lucent to Merge with Nokia, Shares Jump 13%).
Alcatel-Lucent currently carries a Zacks Rank #3 (Hold). Better-ranked stocks in the same space include Envivio, Inc. (ENVI - Snapshot Report), Premiere Global Services, Inc. (PGI - Snapshot Report) and Gigamon Inc. (GIMO - Snapshot Report), all three sporting a Zacks Rank #1 (Strong Buy).
Note:
1 EUR = $ 1.1283 (period average from Jan 1, 2015 to Mar 31, 2015)
1 EUR = $ 1.085 (on Mar 31, 2015)
One Alcatel-Lucent ADR corresponds to one ordinary share.
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