Wireless Facilities Learns a Hard Lesson
'Taint what you do, it's the way that you do it.
That old jazz standard should have been playing Monday when Wireless Facilities (WFII) posted its third-quarter earnings and began mourning over what is already shaping up to be a dismal fourth quarter.
WFI manages outsourced wireless engineering and network projects, and it's clearly choosing to do the right projects. Just look at some of its recent contracts: supplying RFID technology to the Department of Defense and wireless services to Madison, Wis. It also is partnering with Google (GOOG) in a bid to make San Francisco a 49-square-mile wireless zone.
But these are fixed-price contracts, so they're only as valuable as WFI's ability to keep costs down. That, as the song goes, is what gets results. But when investors took a look at WFI's results Monday morning, they quickly drove its stock down 23%. WFI's third-quarter EPS was in line with analysts' forecasts, but only because of a $1.9 million benefit for income taxes.In the fourth quarter, the performance is expected to be worse: CEO Eric DeMarco said EPS could fall to 5 cents, or half what analysts had been expecting. Fourth-quarter revenue will be "roughly flat" with the third, the company said. After a daylong tug-of-war between bulls who held faith in WFI's long-term opportunities and bears who question its ability to get there, the stock had drifted back up to $5.95 by Monday's close, a moderate recovery from the morning carnage but still a 13% drop. Volume was nine times heavier than normal. That ambivalence is also reflected in the reaction of analysts to WFI's report. "I'm bullish on the industry in general," said Seth Potter of Punk Ziegel, which has no underwriting relationship with the company. "And the company itself is diversified. But there's always something like this coming up. This is not an unusual situation this quarter." Potter is maintaining a market perform rating on WFI.
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