Critic Silenced By Alcatel-Lucent

Feb.13.14 | About: Nokia Corporation (NOK)

Alcatel-Lucent (ALU) came through swimmingly with its fourth-quarter EPS report and in so doing has put in place supports for a higher floor for its stock price. As regular followers of this column will note, this is coming from a critical voice and not a vested interest, so it is an especially meaningful notation. Alcatel-Lucent CEO Michael Combes has truly earned the credit he is being given here because that is the only way I give it.

However, "silenced" is a strong word and one that no writer in the free world could ever accept literally. Rest assured that I will continue to point out risks and issues as the company progresses with its turnaround effort. This is a good thing for shareholders, because it allows no opportunity for complacency at HQ.

Previously, the solvency question was the key catalyst for the hard work and difficult decisions necessary to restore ALU. The company had to either fix things or go under. We can now say that, indeed, the Shift Plan offers the blueprint to reposition the company through 2015. As we progress after that, it will be increasingly important that the company remain vigilant and disciplined and that it put the right incentives in place for managers to ensure Alcatel-Lucent never strays too far from the economic value added path again.

Alcatel-Lucent CEO Michael Combes is making believers of skeptics, as he is accomplishing what others have failed to deliver for years now. The Shift Plan is coming together, and in this last quarter, the company produced success on many varied fronts.

  1. Quarterly revenue grew 8.8% sequentially against the immediately preceding quarter
  2. Quarterly gross margin improved nearly 400 basis points year-to-year & 170 points sequentially
  3. Co. realized €104 million in fixed costs savings in the quarter, €363 million for year
  4. 2013 cost savings were above target and well on the way toward the €1 billion plan target
  5. Asset divestitures continued with commitment to sell the Enterprise business for €237 mln.
  6. On course to divest €1 billion in assets that do not meet the company's plans for economic value added growth
  7. Co. is capital secure after recent €1 billion rights offering and its debt reprofiling
  8. Profitability achieved in Q4, as ALU earned per share net income of €0.05
  9. Cash flow positive, generating €363 million after restructuring charges in Q4

The stock approached the earnings report with trepidation, and rightfully so. After all, this was a company that had a track record of disappointing the market. I suggested readers avoid risk heading into the fourth quarter report. It was, after all, a report for that final period of the year when companies that are restructuring tend to disappoint while setting up a clean slate for the forward year. And the stock had come a long way in 2013, so I anticipated others would limit risk and sell the stock in early 2014. It did drift into the report, and it also soared right after it.

You did not hear a peep from me on the news, because I was silenced. Guess what, I'm happy about that, because I had no investment interest long or short and do not generally seek bad things for other investors either. And that's why today I can say that Alcatel-Lucent is indeed heading in the right direction, and that I'm now a believer in new management and in the stock's recovery moving forward. Congratulations to ALU holders on the confirmation of progress provided by the company in Q4. Here is to a better 2014!

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.