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JDS Uniphase Breaks Away on Missed Q4 Earnings, Loss Widens

by: John Lee August 27, 2008 | about stocks: JDSU    

John C. Lee

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On Wednesday, August 20 after-hours, JDS Uniphase Corp. (JDSU) reported a Q4 loss of $0.13 per share or $29.8 million vs. a loss of $.08 per share or $17.9 million (see earnings call transcript). Revenue increased 11% to $390.3 million from $350.7 million a year ago. Analysts were expecting earnings of $0.10 per share on $395.8 million in revenue. Excluding items, JDSU would have earned $0.07 per share or $15.5 million, missing both analysts’ earnings estimates and the revenue targets. Shares gapped down from yesterday’s close of $11.90, fell over 12% or $1.48, to close at $10.42 on 22 million shares traded. 

For the quarter, JDSU’s net income was $15.5 million or $0.07 per share. However, JDSU wrote down $45.4 million of goodwill and intangibles due to two acquisitions, $20.8 million in patent and litigation charges, and a $61.6 million in cash and securities from a litigation settlement. These items lowered net income by $4.6 million. Also, JDSU held $903 million in cash, reduced short-term debt by $75 million and bought back $113.2 million worth of stock. JDSU also announced that the company is free cash flow positive $9 million. To date, JDSU has not released the most current cash flow statement.

For the full fiscal 2008 year, JDSU lost $0.10 per share or $21.7 million on $1.53 billion in revenue vs. a loss of $0.12 per share or $26.3 million in fiscal 2007. Revenue was driven by growth in the optical communications unit (6%), communications test & measurement (12%), and advanced optical technologies (21%). However, the commercial laser unit’s revenue declined by 9%. By geography, The America’s represented 50% of total net revenue, European customers accounted for 29%, and Asian customers accounted for 21%.

Key Figures for Fiscal 2008 (%):

  • Sales Growth: 9.5%
  • EPS Growth: -22%
  • Gross Margins: 42.1%
  • Operating Margin: -8.7%

The industry outlook remains neutral due to a high level of competition and a decline in capital investment. U.S. customers have delayed spending and remain conservative with future purchases. However, due to continued explosive demand in internet media, I expect service providers and telecom carriers to increase network upgrades for the long-term.

Currently 12 analysts publish recommendations on JDSU, which include 6 “Buy” ratings and 6 “Hold” ratings. On August 26, Deutsche Bank Securities reiterated their “Buy” rating, but reduced their target price to $13.50 from $17. On august, 21, RBC Capital Markets reiterated their “Sector Perform” rating, but reduced their target price to $12 from $13. On the same day, Morgan Keegan reiterated their “Market Perform” rating.

For the past 12 months, insiders purchased 0 shares and sold 31,295 shares. Also comparing Q to Q3, there has been a net -27.5% change in institutional ownership, or 35.44 million shares.

For Q1 2009, JDSU expects revenue to be in the range of $378 million - $394 million, which also missed analysts’ expectations of $399.5 million.

Technically, JDSU formed a breakaway gap following Q4 earnings. The stock is threatening to hit a new multi-year low, but I expect a pullback to the $10.50 level as well as a continuation downward for the short-term. JDSU remains in a downtrend since the beginning of 2006 for the long-term and unless JDSU makes a higher low and breaks above $15, long positions should be avoided.

Short, Intermediate-Term Chart: 1 year

Long-Term Chart: 3 years

Disclosure: none

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This article has 3 comments:

  •  
    Aug 27 11:28 PM
    This article, like many others, do a good job in describing where JDSU have been able to increase revenues. Unfortunately they overlook JDSU management’s inability to control SG&A Expenses. From the most recent SEC annual report filing”

    “2008 SG&A expenses increased 24% ($87.4 million) while revenues only 9.5%. In 2007 SG&A expenses increased 13% ($43.1 million) on a slightly increased revenue base of 16% ”

    Many emails have been sent to the Board of Directors to look into this matter but have gone unheeded. For JDSU to survive and prosper it is imperative that the Board of Directors play an active role in ensuring that management is controlling expenses. A plan for reducing SG&A expenses should be put in place throughout the organization with specific amounts and target dates

    Reply
  •  
    Aug 28 04:12 AM
    Do you know if they're working on such plan? Isn't it a shame that a lot of directors think that their job description is to collect stock awards...
    Reply
  •  
    Aug 28 10:00 AM
    No plan in place that I am aware of. As mentioned many emails have been sent to the Board of Direcors without reply.
    Reply
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