ADC Telecommunications Outperforms - Analyst Blog

ADC Telecommunications Inc. (ADCT) declared excellent financial results for full-year 2010 that beat our expectations. Due to the change in the company's reporting fiscal year, management has compared results for the 12 month-period ended September 30, 2010 with the results of 11 months ended September 30, 2009. On July 12, 2010, Tyco Electronics Ltd. (TEL) and ADC Telecommunications jointly announced that the two companies have entered into an agreement under which Tyco Electronics will acquire ADC Telecommunications for a consideration of $1.25 billion. The deal is subject to various closing conditions including regulatory approval and is expected to be completed by end 2010.

Full-Year 2010 Results

On a GAAP basis, net income from continuing operations in fiscal 2010 was $78.5 million or 78 cents per share compared to a net loss of $452.9 million or a loss of $4.64 per share in the previous year. Fiscal 2010 earnings per share of 78 cents was far ahead of the Zacks Consensus Estimate of 52 cents.

Fiscal 2010 total revenue was $1,156.6 million, up 16.8% year over year and also above the Zacks Consensus Estimate of $1,147 million. The year-over-year increase in revenue was mainly driven by improving global economic conditions that resulted in higher carrier spending for next-generation networks.

Fiscal 2010 gross margin was 36.1% compared to 33% in the previous year. This reflects the aggressive cost cutting measures taken by management during the past one year. Operating expenses were $372 million compared to $743.9 million in the previous year.

During fiscal 2010, cash flow from continuing operations was $136.6 million compared to $79.9 million in fiscal 2009. Free cash flow (cash flow from operation less capital expenditure) in fiscal 2010 was $102.8 million compared to $44.4 million in fiscal 2009.

At the end of fiscal 2010, ADC Telecommunications had $746.7 million of cash & marketable securities on its balance sheet compared to $586.6 million at the end of fiscal 2009. Total debt was $651.1 million at the end of fiscal 2010 compared to $651.6 million at the end of fiscal 2009. Debt-to-capitalization ratio was 0.60 compared to 0.64 at the end of fiscal 2009.

Segmental Performance

Global Connectivity Solutions: Revenue from the segment was $870.5 million in fiscal 2010, up 10.5% year over year. This segment provided nearly 75.3% of total revenue. Full-year 2010 operating income generated by this segment was $64.9 million, up 27.5% year over year.

Network Solutions: Fiscal 2010 total revenue was $87 million, up 66% year over year. This segment provided around 9.7% of total revenue. Full-year 2010 operating loss of this segment was $13.9 million, down 51.2% year over year.

Professional Services: Fiscal 2010 total revenue was $172.8 million, up 26.8% year over year. This segment provided nearly 15% of total revenue. Full-year 2010 operating income of this segment was $8.9 million, up 122.5% year over year.

Geographic Sales Distribution

During fiscal 2010, total sales in the U.S. were $701.4 million, up 19.2% year over year. Asia-Pacific region generated $127.3 million, up 38.8% year over year. China alone generated $70.6 million of revenue, down 1.4% year over year. Total sales in the EMEA (Europe, Middle East, and Africa) were $172.9 million, up 1.5% year over year. Sales in Americas (Canada, Central/South America) region were $84.4 million, up 23.6% year over year.

 
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