Analysts Cautious on Comtech’s Third Quarter Telecom Performance

[Satellite TODAY 06-11-12] Comtech easily topped consensus revenue forecasts of $98 million in its 2012 third quarter, reporting a little less than $100 million in revenue from increasing strength in the company’s RF amplifier business, according to its latest financial results issued June 8.

   Comtech’s RF segment broke a 10-quarter streak of year-over-year revenue declines in the third quarter, growing 22 percent to $28.1 million. Its EBIT margins improved an impressive 9.2 percent, compared to analysts’ forecasts of 6.2 percent, representing the segment’s best performance in two years. 
Analysts, however, were not completely satisfied by Comtech’s overall results.
   Raymond James Analyst Chris Quilty said he was concerned with the company’s persistent weakness in its telecom business, with sales declining 23 percent year-over-year to $48 million. “Our forecast was $51.2 million,” Quilty told Satellite TODAY Insider. “That reflects a significant year-over-year decline in Comtech’s over-the-horizon (OTH) microwave systems and a modest decline in the earth station product line. Gross margins in the telecom segment also were flat sequentially, but EBIT margins declined by more than seven percentage points due to the sharp falloff in sales.”    
    While disappointed with the 2012 third quarter performance of Comtech’s core growth segment, Quilty said he was encouraged by the improved order trends for both Earth station products and the RF business. “The bottom line, however, is that we expect the stock to trade sideways due to essentially unchanged guidance,” he added.
   Comtech Mobile Data revenues were approximately 4 percent above analysts’ projections at $23.6 million, reflecting follow-on orders from the U.S. Department of Defense and a sharp decline in the microsatellite business. The unit’s EBIT margins declined to a two-year low of 11.2 percent due to lower volumes. 
   Comtech reported a positive book-to-bill order ratio in both its Earth station product line and RF Amplifiers, with an 8.8 percent improvement in its backlog to $137 million.  
   Comtech President and CEO Fred Kornberg highlighted the improving order trend in the Earth station product line and hinted at the possibility of a large OTH order in the fourth quarter. “Although market conditions remain challenging, we posted solid results in the third quarter,” Kornberg said in a statement. “During the quarter, we achieved our highest level of quarterly bookings in fiscal 2012 and continue to focus on our long-term growth plans.”

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