Goldman Sachs took a $5B writeoff this morning for the new tax law and Bloomberg expects $20B more from Citi. Verizon and AT&T have some of the same issues so may see similar. Do not believe U.S. earnings results in the next year or two because balance sheet adjustments may overwhelm underlying trends. Underneath it all, all these companies are extremely profitable and the tax changes will put them ahead. But the numbers the next 24 months could be highly misleading.
Verizon has $46B in "deferred long term liabilities" and $38B in poorly defined "other liabilities." Major adjustments - up or down - would surprise no one. Phil Cusick of Morgan did an analysis a while back from which I inferred Verizon would need writedowns. Since he hadn't said that explicitly, he got angry at me and cut me off his distro. (I'd like to be back. His analysis then and other times was on target.) I haven't trusted Verizon's financials for a decade because of unclear items like these liabilities and enormous goodwill. Former CFO Stephenson at AT&T has long been a wizard at delivering the numbers he wants to.
Suggestion: If you are putting money into this industry, closely follow analysis from John Hodulik and Craig Moffett. They are among the best at finding reality beneath the figures reported.
Separately, Adtran pre-announced 4Q sales at $125M, $20M less than the last three quarters.
Tom Stanton explained, "this quarter has been significantly impacted by a merger-related review and slowdown in the spending at a domestic Tier 1 customer. Our current understanding is that this review will be completed in 60 to 90 days, at which time capital plans will be finalized." I thought that meant AT&T is slowing down spending. T has been telling the street the 4G build is mostly over and the 5G will be modest for at least another year or two, allowing a capex cut. I hear a rumor it might be Century instead.
Randall fired a few thousand people just before Christmas, part of the plan to cut 70,000 jobs that most people haven't noticed. AT&T decided a year ago or more there was no growth in telecom and they would have to cut back. One way to view the $85B Time Warner deal is that AT&T had no other good way to move that much money from the current business. (Writing quickly here- there's much more to the analysis.)
Adtran is down 14% on the news and Calix 5% on fears they will also be affected. The details in the announcement are somewhat encouraging; Adtran expects to almost break even for the quarter despite a big sales disappointment.
Both Adtran and Calix are doing well in key accounts, especially with their SDN software. I hope that continues; I'm in the process of selling them ads and I need the money.
HUNTSVILLE, Ala.--(BUSINESS WIRE)--
ADTRAN, Inc. (ADTN) announced revised revenue and earnings estimates for the fourth quarter ending December 31, 2017. Based upon information currently available, revenue for the quarter is expected to be approximately $125 million. Non-GAAP earnings per share for the quarter are expected to be approximately $0.01. GAAP earnings per share for the quarter, assuming dilution, are expected to be a loss of approximately $0.04. Further, our current expectations are that revenue for the first quarter of 2018 will be in the range of the fourth quarter of 2017.
ADTRAN Chief Executive Officer Tom Stanton stated, “Our performance this quarter has been significantly impacted by a merger-related review and slowdown in the spending at a domestic Tier 1 customer. Our current understanding is that this review will be completed in 60 to 90 days, at which time capital plans will be finalized. Going forward, recent awards and trials in Tier 1 customer accounts, both domestically and abroad, leave us very confident about our positioning.”
GAAP earnings per share exclude any potential income tax effects of the Tax Cuts and Jobs Act. Non-GAAP earnings per share exclude the effect of acquisition-related expenses, amortizations and adjustments, and stock compensation expense.