Tellabs Exceeds Expectation – Analyst Blog

Tellabs Inc. (TLAB) has declared first quarter 2010 financial results today that exceed our expectations. Quarterly total revenue of $379.7 million was up 5% year-over-year. First quarter revenue was also above the Zacks Consensus Estimate of $370 million. The rise in year-over-year revenue is the result of higher sales for both Broadband and Services segment products partially offset by decline in the Transport segment revenue.

On a GAAP basis, net income in the first quarter 2010 was $45.9 million or 12 cents per share compared to a net income of $6.5 million or 2 cents per share in the prior-year quarter. However, adjusted (excluding special items) EPS in the reported quarter was 11 cents per share, significantly above the Zacks Consensus Estimate of 8 cents per share.

Quarterly gross margin was 50.7% compared to 44.2% in the year-ago quarter. This reflects favorable product-mix for high-margin Data products. Operating expenses, in the same quarter, were $156.5 million compared to $151 million in the prior-year quarter. Increase in operating expenses was mainly due to higher charges for one-time items. First quarter operating margin of 9.5% was highest since 2006.

 During the reported quarter, the company repurchased 112,000 of its outstanding common shares for a total consideration of 4793,000. During the first quarter, Tellabs generated $63.4 million cash from operation compared to $44.1 million in the year-ago quarter. Quarterly free cash flow was $59.4 million in 2009 compared to $36.5 million in the prior-year quarter.

 At the end of the first quarter of 2010, Tellabs had $1,419.5 million of cash & marketable securities on its balance sheet compared to $1,357.6 million at the end of fiscal 2008. Balance sheet of Tellabs had no outstanding debt.

 Broadband Segment

 Quarterly total revenue of the Broadband segment was $191.3 million, up 7.3% year-over-year. Within this segment, Data Product revenue was $130.9 million, up 107.8% over the year-ago quarter. Access revenue was $30.1 million, down 53% over the prior-year quarter. Managed Access revenue was $30.3 million, down 40.8% year-over-year. Broadband segment profit was $60.9 million, up 77.6% year-over-year. This was mainly due to higher level of sales from high-margin Data products.

 Transport Segment

 Total revenue from the Transport segment was $127.7 million, down 1.5% year-over-year. However, this segment generated a profit of $45.4 million, up 14.1% year-over-year. This was mainly due to lower R&D expenses for this segment.

 Services Segment

 Total revenue of the Services segment was $60.7 million, up 13% year-over-year. This segment generated a profit of $19.5 million, up 2.6% year-over-year. This was mainly due to lower service-delivery costs.

Geographic Distribution

In the first quarter 2010, North America region generated $274.5 million of revenue, down 7.5% sequentially. Rest of the World generated the remaining $105.2 million, down 21.4% sequentially.

 Portfolio Distribution

 In the first quarter 2010, Growth products generated $214.9 million of revenue, up 14% sequentially. Growth products now constitute 57% of total revenue. Core products generated the remaining $164.8 million, down 17.9% sequentially.

 Future Financial outlook by Management

 Management predicted that the company’s second quarter 2010 revenue will grow by 10%-12% sequentially. Non-GAAP gross margin is likely to remain same sequentially and non-GAAP operating expenses to be little over $140 million. Stock-based compensation expenses will be approximately $6 million.