Adtran, Quick Earnings Review

Just seemed pointless to waste any more words on the shutdown.  So commentary a networking company’s earnings call that may not be of general interest.

Got through the Adtran (ADTN) transcript.  The stock was off around 12% after their call.  As so often seems to be the case, the “problem” seems to be more about Wall Street not having intelligent, informed expectations vs Adtran not meeting them.  To paraphrase…

  • “You are a bad tiger! Your stripes look awful this quarter!”
  • “Ummm… But I’m a leopard!?…?”
  • “Don’t give me that excuse!  “The market” was expecting nice sexy stripes and its up to you to deliver.  I’m going with the herd.  You think I’ve got time for complicated ornithological questions?  Besides, I’m a computer program anyway.  (blue screen of death appears, ending conversation).

In this particular case, it sounds like people were not considering that Adtran’s 4 Q is often seasonally weak.  Admittedly, ADTN has reported some strong 4Q’s over the last few years and that sort’ve became the new normal (Adtran’s cautions notwithstanding).  But there was a time long ago when the people following Adtran might have accounted for that as an anomaly.  But people’s memories are shorter these days and trading program’s memories are pre-wired…

Actually I am over-dramatizing here (mostly to make a point).  Things DO look pretty confusing for Adtran and its ilk (most notably Calix, which I own) over the next few quarters.  Especially with the shutdown have an unclear effect on broadband subsidies to rural carriers.

However, things look pretty darn good for 2014 for ADTN with a large project starting up at AT&T and the subsidy program for rural carriers largely back on track after a hiatus over the last few years.

To which the (shrugged) response of a modern-mo-mo portfolio manager is “well, I’ll buy it when I see it.”  Which is why the safer money to be made these days is longer dated money.  Except that no-one invests that way.  Which is of course why there is money to be made that way….

Having said all of the above, Adtran is still facing a lot of other cross currents as it re-shuffles product lines and the like.  It is a well-managed company, but I have been more comfortable owning Calix which is a mostly clean bet on the rural carriers.  Of course, CALX was a much better buy a year ago at $5-$6 vs $12+ today.  But that is that long-dated investing thing again.  Heck, you’d have to wait a WHOLE YEAR for that 100% return and people just don’t have that sort of patience… (grin).

Big Caveat 1 – I also thought CALX was a buy at $8 (before it went to $5-$6).  I missed how the FCC’s CAF subsidy plan changes would (badly) impact the stock.  So I am hardly feeling covered with glory on this name (also for other reasons I will discuss later on).   But I DID buy more at $5-$6 and that has worked out pretty well on an average cost basis.  I do see some upside from $12, but have a lot less conviction here.  We’ll see after their October 29 earnings date.

Big caveat 2 – I am also building a house so I might sell some or all of the Calix to fund that cash need at any time.

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