Why Is Ciena (CIEN) Down 5.1% Since Last Earnings Report?

A month has gone by since the last earnings report for Ciena (CIEN). Shares have lost about 5.1% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Ciena due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Ciena Q3 Earnings & Revenues Top Estimates, Up Y/Y

Ciena reported solid third-quarter fiscal 2019 (ended Jul 31, 2019) financial results, wherein both the bottom line and the top line surpassed the respective Zacks Consensus Estimate, and increased year over year. The performance was driven by market share gains on the back of technology leadership and diversified customer base in high-growth markets.

Net Income

On a GAAP basis, net income for the quarter was $86.7 million or 55 cents per share compared with $50.8 million or 34 cents per share in the year-ago quarter. The year-over-year improvement was mainly due to higher operating income.

Adjusted net income came in at $112.3 million or 71 cents per share compared with $74.3 million or 48 cents per share in the prior-year quarter. The bottom line beat the Zacks Consensus Estimate by 14 cents.

Revenues

Quarterly total revenues increased 17.3% year over year to $960.6 million, primarily driven by higher product sales. Markedly, Ciena had two 10%-plus customers in the quarter, which represented 25% of revenues. The top line surpassed the consensus estimate of $931 million.

Geographically, revenues from North America were $617 million, up 24.1% year over year, driven by additional share gains across diverse customer base, including new wins and increasing traction of packet and software portfolios. Revenues from Europe, Middle East and Africa were $169.5 million, up 38.7%. Caribbean and Latin America totaled $39.3 million, up 42.9%. Asia Pacific revenues were $134.8 million, down 21.7%.

Segment Results

Revenues from Networking Platforms increased 17.5% year over year to $796.1 million. Software and Software-Related Services revenues were $47.8 million compared with $41.2 million in the prior-year quarter. Revenues from Global Services were $116.7 million compared with $100.2 million a year ago.

Other Details

Gross margin was 44.2% compared with 42.9% in the year-ago quarter. Operating expenses were $299.1 million, up from $266.3 million. Operating income increased to $125.3 million from $85.3 million. Operating margin was 13% compared with 10.4% in the prior-year quarter. Adjusted EBITDA was $178 million, up from $136.1 million.

During the reported quarter, Ciena repurchased about 1.1 million shares for an aggregate amount of $45.4 million.

Cash Flow & Liquidity

During the first nine months of fiscal 2019, Ciena generated $173.1 million of net cash from operating activities compared with $161.2 million in the year-ago period. As of Jul 31, 2019, the company had $723.2 million in cash and equivalents with $681.9 million of net long-term debt.

How Have Estimates Been Moving Since Then?

Estimates review followed an upward path over the past two months.

VGM Scores

At this time, Ciena has a great Growth Score of A, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Ciena has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.

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