ATC Technology Corporation (ATAC) announced that it will release its results for the first quarter of 2010 after the market closes on April 27, 2010. The company has lowered its guidance for the quarter as well as for the year after reporting flat earnings for the fourth quarter of 2009.
ATC revealed that it expects a decline in revenue and earnings per share to $100 million and 30 cents for the first quarter from $113.5 million and 47 cents for the same quarter a year ago.
In the fourth quarter, ATC posted flat earnings of 50 cents per share (before special items) compared to the year-ago level. This was a tad lower than the Zacks Consensus Estimate of 52 cents per share. Consolidated revenue in the quarter was almost flat at $125.3 million compared to $126.5 million in the fourth quarter of 2008.
ATC believed the loss of the transmission remanufacturing program with Honda Motor Co. (HMC), lower volume with its major customer AT&T Mobility LLC, price concessions related to contract renewals, and start-up costs related to the engine programs would lead to the fall in revenue during the first quarter.
The expected drop in revenue no doubt indicates ATC’s susceptibility due to its reliance on a few customers such as Ford (F), Honda, AT&T Mobility and TomTom, who collectively comprised 77% of sales in 2009.
Honda, one of ATC’s largest customers in the Drivetrain segment, terminated its automatic transmission remanufacturing program with the company in 2009 due to its intention to in-source this function. This has adversely affected ATC as the program contributes about 25% of revenue in its Drivetrain segment. In 2009, revenue in the Drivetrain segment fell 21.1% to $139.7 million, partly due to the loss of the program.
The lower volume with AT&T (comprising 48% of revenue in 2009) – the wholly-owned wireless subsidiary of AT&T Inc (T) – was attributable to fewer service opportunities related to the smartphones, which is a growing part of the AT&T subscriber base. In the fourth quarter, revenue in the Drivetrain segment dipped 17.4% to $31.9 million, due partly to an 8.3% decrease in revenue with AT&T on the back of lower volumes.
For 2010, ATC anticipates revenue of $475 million–$500 million and earnings per share of $1.75–$1.95 versus its previous projection of revenue of $515 million–$550 million and earnings per share of $2.13–$2.45.
The downward revisions were driven by a decline in business volume with AT&T, reductions in scope and timing of certain anticipated new Logistics programs, and the impact of slower-than-expected launches of new engine programs.
For 2010, revenue and profit in the Logistics segment are anticipated in the range of $355 million–$375 million and $55 million–$61 million, respectively. This is a decline from the earlier guidance of revenue and profit of $400 million–$430 million and $67 million–$74 million, respectively in the segment. The downward revision reflects ATC’s inability to recoup its lost volumes with AT&T.
Meanwhile, revenue in the Drivetrain segment is projected in the range of $120 million–$125 million, an improvement from the earlier guidance of $115 million–$120 million. However, the guidance for segment profit remains almost the same at $2 million–$3 million, compared to the earlier $2 million–$5 million.
Estimate Revisions Trend
Over the last 30 days as well as 7 days, the sole analyst covering the stock has revised the estimates downward for the first quarter of 2010, driven by the downward revision of estimates by the company itself.
However, the analyst has not revised the estimate in either direction for the full year 2010. This has led to the long-term recommendation of “Neutral” for the stock.
With respect to earnings surprise, ATC has missed the Zacks Consensus Estimate only once in the trailing four quarters. This is reflected in the average earnings surprise of 13.22%, implying that the company has beaten the Zacks Consensus Estimate by the same magnitude over the last four quarters.
Currently, the Zacks Consensus Estimate for the first quarter and full year 2010 are 30 cents per share and $1.85 per share, respectively. The upside potential of these estimates, essentially a proxy for future earnings surprises, is nil.
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