ATC Technology Corp. (ATAC) posted a profit of $7.8 million or 39 cents per share in the second quarter of the year, falling short of the Zacks Consensus Estimate by 6 cents and the year-ago level of $10.6 million or 53 cents per share (excluding goodwill impairment and restructuring charges). Revenues declined 9.6% to $104.4 million due to lower sales in the company’s both Logistics and Drivetrain segments.
The reduction in profit was attributable to a decrease in returns volumes with AT&T Inc. (T) and wind-down of the ATC’s transmission remanufacturing program for Honda Motor Co. (HMC).
Revenues in the Logistics segment dipped 8.6% to $77.6 million. Consequently, the segment profit decreased 24.2% to $11.9 million driven by a fall in returns volumes with AT&T due to enhanced device quality and wider consumer acceptance of smartphones as well as by the negative impact of price concessions related to the contract renewals. However, these were partially offset by an increase in revenues with TomTom.
Revenues in the Drivetrain segment descended 12.4% to $26.8 million. The segment reported a loss of $400,000 in contrast to a profit of $1.7 million (excluding goodwill impairment and restructuring charges). The loss was driven by the termination of the transmission remanufacturing program with Honda and launch costs associated with new engine remanufacturing programs. However, these were partially offset by the cost savings driven by restructuring of the Drivetrain segment in the previous year.
Although the company’s share price fell on the back of poor results, we are optimistic about ATC’s merger agreement with GENCO Distribution System Inc. (“GENCO”) that will be closed during the fourth quarter of the year.
Following the completion of the deal, ATC will turn into a wholly owned subsidiary of GENCO, a privately held third-party provider of logistics services for retailers, manufacturers and U.S. government agencies. GENCO will acquire ATC for $25 per share in cash, reflecting a 3.4% premium over the latter’s closing share price as on July 27, 2010.
As a result, we recommend the shares of the company as Zacks #2 Rank (Buy) in the short term (1–3 months).
ATC TECHNOLOGY (ATAC): Free Stock Analysis Report
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AT&T INC (T): Free Stock Analysis Report
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