Earnings Preview: ADC Telecommunications

ADC Telecommunications (ADCT) is expected to report Q3 earnings after market close Thursday Sept. 4, with a conference call scheduled for 5:00 pm ET.

Guidance

The consensus estimate is 26c for EPS and $388.55M for revenue, according to First Call.

Analyst Views

On July 22, ADC pre-announced results, lowering fiscal 3Q08 and full-year guidance, due to lower revenue expectations for both its copper and fiber connectivity business. The change in guidance reflected a shift in spending patterns among ADC's key U.S. customers. The revised guidance for Q3 called for a revenue decline of 3% to 5% quarter on quarter, versus prior guidance of flat revenues sequentially.

Jefferies does not expect any surprises when ADC reports and thinks the stock currently prices in a "disaster scenario." Kaufman's estimate implies a 4% sequential quarterly decline. The firm is estimating EPS of 27c and $387.1M in revenue, essentially in-line with management guidance. As a results of the lower revenue expectations and less favorable product mix, Kaufman is expecting a Q3 gross margin of 34% versus last quarter's 36.3%. Looking forward, Kaufman's expectations are in-line with management's guidance for a gross margin of 34% for 2H08 and 35% for FY08. In FY09, Kaufman expects gross margins to track in 35% range, with an anticipation of a return to a more favorable product mix. For Q4 EPS and revenue, Kaufman is expecting 26c and $383.4M, above the consensus of 25c and $381.2M.

Key issues for the conference call: forward guidance, specifically on gross margins; and an update on the spending plans of its key U.S. customers.