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Tickers in this Article: ADTN, T, VZ
ADTRAN Inc. (ADTN) reported third quarter 2012 adjusted earnings of 20 cents per share, beating the Zacks Consensus Estimate of 16 cents. However, this compares unfavorably with the year-ago adjusted earnings of 56 cents. Adjusted earnings per share for the quarter excluded the impact of 2 cents in expenses, amortizations and adjustments related to the acquisitions of Nokia Siemens Network's Broadband Access (NSN) business. It also excludes negative impacts of 3 cents related to stock-based compensation expenses.

Although the company's earnings came in line with its revised estimate provided in the beginning of the month, it still remained impacted by market uncertainties. ADTRAN's earnings continue to be affected by the weak spending pattern of its customers and declining business of its traditional product lines, mainly HDSL.

The company reported quarterly revenues of $162 million, missed the Zacks Consensus Estimate of $189 million and plummeted 15.6% year over year.

Operating income registered a steep drop of 80% year over year to $10.3 million while operating expenses grew 19.3% year over year to $69.7 million.

Liquidity

ADTRAN exited the reported quarter with cash and cash equivalents of $43.5 million compared with $32.5 million at the end of the year-ago quarter.

The company's long-term obligations to pay bonds remained unchanged from the second quarter of 2012 at $46.5 million. 

Dividend

The company's board of directors declared a cash dividend of 9 cents per share for the quarter. The dividend will be paid on November 8 to shareholders of record as of October 25.

Our Viewpoint

Despite the company's current market dynamics, we foresee long-term growth based on its three key growth products, several new product cycles in broadband access, wireless backhaul products, fiber to the node, Ethernet over copper, optical and enterprise VoIP. In addition, we believe the company's recent acquisitions will also support its market expansion in the broadband access market.

However, in the near-term the stock is expected to perform lackluster unless there is a turn around in its customers' spending pattern. Its heavy reliance on its key customers - such as AT&T Inc. T) and Verizon Communications (VZ) - will continue to weigh over its earnings unless substantial new contract wins take place.

We are maintaining our long-term Neutral recommendation on ADTRAN. However, the stock has a Zacks #5 Rank, implying a short-term Strong Sell rating.

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