NEW YORK – Telecommunications equipment maker Tellabs Inc. (TLAB) on Tuesday posted a surprisingly strong quarterly profit due to spending by telephone companies on upgraded wireline and wireless networks, sending shares up by 8 percent.
Tellabs reported stronger-than-expected gross margins, hitting targets executives had hoped to reach by the end of the year.
Tellabs is the sole supplier of residential fiber-optic network connection boxes to Verizon Communications Inc. (VZ) Verizon has said it plans to make its fiber-optic services available to 3 million homes and offices by the end of this year, and said on Tuesday it was boosting capital spending for the program.
In addition to Verizon, Tellabs also supplies BellSouth Corp. (BLS) with fiber-optic network equipment as part of its network upgrade. Tellabs said fiber-optic equipment accounted for roughly half of the $143.5 million in access equipment revenue during the quarter.
Net profit fell 17 percent to $41.1 million, or 9 cents a share, compared with net income of $49.6 million, or 12 cents a share, a year earlier. Tellabs said profits fell due to costs from its purchase of equipment maker AFC and other one-time items.
The results beat analysts' average expectation, as compiled by Reuters Research, by 4 cents.
Revenue rose 52 percent to $463 million, hitting the high end of the range of analysts estimates. The current quarter included the acquisition of AFC, which the company completed last November.
Excluding restructuring and other charges, amortization of purchased intangibles, deferred stock compensation, and long-term investment impairment charges, Naperville, Illinois-based Tellabs reported earnings per share of 13 cents.
"The gross margin was better than we expected," said Robert W. Baird analyst Kenneth Muth. He said Tellabs had boosted its profitability with a more favorable mix of products in the access business, which showed strong sales of fiber network gear. He also pointed to lower operating expenses.
Gross margins were 45 percent, up from 42 percent in the first quarter. Tellabs had previously said that it hoped to reach gross margins of 45 percent by the end of the year, and executives said on a conference call they expect third quarter margins to remain at 45 percent or go slightly higher.
Chief Executive and President Krish Prabhu also cited investment by wireless companies, who are building their networks to provide high speed data and other advanced services. Tellabs customers include Sprint Corp. (FON) and Cingular Wireless, a joint venture of BellSouth and SBC Communications Inc. (SBC)