ADC Telecom’s net income drops

(Telephony) ADC Telecom reported a drop in quarterly net income and lowered its fiscal 2001 growth targets in light of a continued slowdown in equipment sales. Revenue for fiscal 2001, forecast to be in the 15% range as late as last month, will now reach between $3.5 billion and $3.8 billion, an increase of between 6% and 15% over 2000, executives said. Earnings from operations are still expected to grow 15% in fiscal 2001, to between 48¢ and 55¢ a share.

ADC, which incurred $49.9 million in restructuring charges in the first quarter, said it is not done taking steps to improve profitability, and would incur more restructuring charges in the second quarter. ADC has already eliminated 1,400 positions across the company.

“ADC has been through these cycles before and our cost reduction actions should provide further bottom-line benefits as U.S. communications capital spending increases from present levels,” said Richard Roscitt, who joined ADC as chairman and CEO last month.

For the second quarter, ADC is forecasting earnings at 9¢-10¢ per share on sales of $825 million to $870 million. On a per-share basis, those earnings results would be flat with the year-ago quarter.

For the first quarter ending January 31, ADC’s pro forma operating income was $56.5 million, compared to $54 million a year ago. The vendor earned 7¢ per share, a penny above analsyts’ reduced expectations of 6¢ per share, according to First Call/Thomson Financial. Before its January 19 earnings warning, ADC had projected profits of 12¢ a share.

Net income for the first quarter, including all expenses and charges, was $2 million, or breakeven on a diluted share basis, compared with $53 million, or 7¢ a share, in the year-ago period. The net results included $22.7 million in nonrecurring charges related to layoffs, $44.4 million in noncash stock compensation expenses and $27.2 million in restructuring costs.

Revenue for the quarter rose 36% to $805 million from $594 million in 1999. In mid January, ADC had lowered revenue forecasts for the quarter from $850 million to $800 million.

“As a result of a challenging economic and market environment in the United States, sales to domestic customers grew at a lower-than-expected rate of 26% and ADC’s first quarter earnings were affected by lower profit margins on sales,” said William Cadogan, retiring chairman of ADC.

The first quarter sales growth was attributed to a 68% uptick in international sales, a 57% increase in broadband connectivity equipment sales, and a doubling in sales for fiber optic connectivity systems and components. Broadband access and transport products are expected to continue to drive ADC’s sales growth in 2001 and 2002, executives said.