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Ciena Offers Up A Downbeat Q4 Forecast
Equipment maker Ciena's (Nasdaq:CIEN) third quarter numbers, released Sept. 4, weren't great by any stretch. But what really irked me was the Maryland-based company's fourth quarter outlook.
I'll dig into Ciena's outlook more in a second. First, here's a quick overview of its Q3 results:
Q3 In A Nutshell
In the Q3 ended July 31, Ciena earned roughly $11.7 million or 12 cents a share. That was sharply lower than the approximately $28.3 million or 29 cents a share it turned in during the comparable period last year. However, excluding items, its earnings came in at 37 cents a share, which was in line with what the Street had predicted. (For more on analyst expectations, read Analyst Forecasts Spell Disaster For Some Stocks.)
However...
A Downbeat Q4 Outlook
In conjunction with its Q3 numbers, the company offered up its outlook for the fourth quarter. Per the earnings release it expects "fiscal fourth quarter revenue in a range of $190 million to $210 million."
What's the problem with this? First off, it's a country mile south of the $263 million that the Street had been expecting. I think that the analyst community will be updating its models in the days ahead and disseminating some not-too-favorable research.
Second, back in June in conjunction with its Q2 results, Ciena's CEO offered up the following: "We remain optimistic about our outlook for the year and reiterate our expectation for annual revenue growth of up to 27% in fiscal 2008."
If Ciena does indeed tag on $210 million as its latest forecast predicts, its total revenue for the year by my math would come to about $932.8 million; yet a 27% growth rate would equal about $990 million.
The company offered up the following reason for its downbeat Q4 outlook in its earnings release: "In addition to existing customer-specific challenges, we have recently begun to experience order delays from many of our tier one service provider customers, which we attribute to their guarded approach to capital expenditures given the uncertain macroeconomic environment." (Explore the controversies surrounding companies commenting on their forward-looking expectations in Can Earnings Guidance Accurately Predict The Future?)
Another Beef, Where Are The Insiders?
Obviously, Ciena is trading in the lower end of its 52-week range. Yet a quick look at recent insider data shows that insiders are eerily quiet. Why? Hold the email, Ciena bulls. I understand that perhaps there was no window to buy given the earnings announcement, but it has been quite a while. What kind of message does that send to investors? If senior executives aren't dipping their toes in the water here, why should retail or institutional investors?
Does it mean that perhaps they think the bottom hasn't been reached? I don't know the answer, and I'm merely speculating. But it does raise my eyebrows.
Bottom Line:
Ciena's Q3 earnings weren't great; however, I'm even more put off by its Q4 expectations. Other industry players like Cisco (Nasdaq:CSCO) and Ericsson (Nasdaq:ERIC) have seen their stocks tank as well, which doesn't make Ciena's situation look any brighter.
I'll dig into Ciena's outlook more in a second. First, here's a quick overview of its Q3 results:
Q3 In A Nutshell
In the Q3 ended July 31, Ciena earned roughly $11.7 million or 12 cents a share. That was sharply lower than the approximately $28.3 million or 29 cents a share it turned in during the comparable period last year. However, excluding items, its earnings came in at 37 cents a share, which was in line with what the Street had predicted. (For more on analyst expectations, read Analyst Forecasts Spell Disaster For Some Stocks.)
However...
A Downbeat Q4 Outlook
In conjunction with its Q3 numbers, the company offered up its outlook for the fourth quarter. Per the earnings release it expects "fiscal fourth quarter revenue in a range of $190 million to $210 million."
What's the problem with this? First off, it's a country mile south of the $263 million that the Street had been expecting. I think that the analyst community will be updating its models in the days ahead and disseminating some not-too-favorable research.
If Ciena does indeed tag on $210 million as its latest forecast predicts, its total revenue for the year by my math would come to about $932.8 million; yet a 27% growth rate would equal about $990 million.
The company offered up the following reason for its downbeat Q4 outlook in its earnings release: "In addition to existing customer-specific challenges, we have recently begun to experience order delays from many of our tier one service provider customers, which we attribute to their guarded approach to capital expenditures given the uncertain macroeconomic environment." (Explore the controversies surrounding companies commenting on their forward-looking expectations in Can Earnings Guidance Accurately Predict The Future?)
Another Beef, Where Are The Insiders?
Obviously, Ciena is trading in the lower end of its 52-week range. Yet a quick look at recent insider data shows that insiders are eerily quiet. Why? Hold the email, Ciena bulls. I understand that perhaps there was no window to buy given the earnings announcement, but it has been quite a while. What kind of message does that send to investors? If senior executives aren't dipping their toes in the water here, why should retail or institutional investors?
Does it mean that perhaps they think the bottom hasn't been reached? I don't know the answer, and I'm merely speculating. But it does raise my eyebrows.
Bottom Line:
Ciena's Q3 earnings weren't great; however, I'm even more put off by its Q4 expectations. Other industry players like Cisco (Nasdaq:CSCO) and Ericsson (Nasdaq:ERIC) have seen their stocks tank as well, which doesn't make Ciena's situation look any brighter.
by
Glenn Curtis
Glenn Curtis started his career as an equity analyst at Cantone Research, a New Jersey-based regional brokerage firm. He has since worked as an equity analyst and a financial writer at a number of print/web publications and brokerage firms including Registered Representative Magazine, Advanced Trading Magazine, Worldlyinvestor.com, RealMoney.com, TheStreet.com and Prudential Securities. Curtis has also held Series 6,7,24 and 63 securities licenses.
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