Ciena's (CIEN) Q4 Earnings Miss Estimates, Revenues Beat

Ciena Corporation CIEN reported fiscal fourth-quarter 2017 non-GAAP earnings of 46 cents, which increased 4.6% on a year-over-year basis but missed the Zacks Consensus Estimate of 50 cents.

Revenues of $744.4 million increased 3.95% year over year and beat the consensus mark of $738.1 million.

Although shares of Ciena have lost 15% of its value year to date, it fared better than the industry to which it belongs. The industry has declined 26.7% in the same time frame.

Segmental Details

Product revenues (82.8% of revenues) were up 5.8% year over year to $616.2 million. Services revenues (17.2% of revenues) declined 4.1% year over year to $128.2 million.

Segment-wise, networking platforms (80.5% of total revenue) grew 5.8% year over year to $598.9 million. The company’s stackable data center interconnect platform, WaveServer is trending well and it is expected to be a key growth driver going ahead.

The company believes that its newly launched 400 gig per wavelength chip, Wavelogic AI, which had a small contribution in the fourth quarter, will have a significant impact on its global sales going forward.

Fiber Deep technology represents a big opportunity for the company going forward driven by the strong adoption of its products among all major cable operators in the global market.

Revenues from Software and software-related services (5.6% of total revenue) rose 11.2% year over year to $41.8 million. The company's focus on migrating customers to Blue Planet network domain controller platform and increasing adoption of the Blue Planet analytics and orchestration platforms is a positive.

Global services revenues (13.9% of total revenue) declined 7.7% from the year-ago quarter to $103.7 million. The decline in deployment services in Caribbean and Latin America (CALA) and Brazil where the company had very large deployments in the last few years led to the year-over-year decline. However, on a sequential basis, it fared better.

Region-wise, Ciena’s revenues declined 4.9% in North America, 7.1% in CALA and 1.6% in Europe, the Middle East and Africa (EMEA), but soared 59.6% in Asia Pacific (APAC). Growth in APAC was fueled by India, which doubled sequentially. The company is very optimistic about the future prospects in the country.

U.S. customers accounted for 59.2% of its revenues, of which 27.6% was contributed by two major customers namely AT&T and Verizon.

However, the growth of these two major Tier 1 companies taken together is expected to remain flat or slightly down in the next year, which is a big concern.

Ciena Corporation Price, Consensus and EPS Surprise

Ciena Corporation Price, Consensus and EPS Surprise | Ciena Corporation Quote

Margins

The company’s non-GAAP gross margin contracted 100 basis points (bps) year over year to 44.2%.

Ciena incurred non-GAAP operating expenses of $240.9 million, up 3.7% from the year-ago quarter. However, as a percentage of revenues, it decreased 10 bps from the year-ago quarter to 32.4%.

Non-GAAP operating margin declined 90 bps to 11.9%.

Balance Sheet

The company ended the quarter with cash and investments of $919.6 million, compared with $854.2 million at the end of the previous quarter.

Ciena generated operating cash flow of $138.5 million in the quarter compared with approximately $136.7 million in the year-ago quarter.

Ciena announced its plan to repurchase up to $300 million of the company’s common stock through the end of fiscal 2020.

Guidance

Ciena also provided guidance for first-quarter fiscal 2018. Revenues for the current quarter are forecast in the range of $625–$655 million. Non-GAAP gross margin is anticipated to be approximately in the low to mid-40% range. Non-GAAP operating expenses are projected to be around $238 million.

The company expects overall annual revenue to grow in the range of 5-7% on an average over the next three years. Non-GAAP earnings are anticipated to grow in the range of 14-16% over the same time period.

Zacks Rank and Stocks to Consider

Ciena carries a Zacks Rank #5 (Strong Sell).

Some better-ranked stocks in the broader technology sector include Intel Corporation INTC, Lam Research Corporation LRCX and NVIDIA Corporation NVDA, all sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks Rank #1 stocks here.

Long-term earnings growth rate for Intel, Lam Research and NVIDIA is projected to be 8.4%, 14.9% and 10.3%, respectively.

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