Brocade Lowballs Guidance
Updated from 8.59 a.m. EST
Brocade's (BRCD) management issued a hasty clarification of the guidance it had given earlier Tuesday, and told skeptical investors to expect top-line growth of 14% to 17% next year, well above the original forecast.
The disappointing earlier guidance, coupled with a precipitous drop in earnings in the fourth quarter that the storage gear maker reported before the opening bell, sparked a sharp selloff in the stock.
At the close, shares were off 34 cents, or 7.5%, to $4.19 on heavy volume.Punk Ziegel analyst Steve Berg says the clarification will likely result in a higher valuation; he raised his own to $5 a share. In recent after-hours trading, shares were up 2 cents. Brocade earned $1.1 million, or nothing per share, in the November quarter, including a charge of $5 million to cover an internal probe related to an ongoing Securities and Exchange Commission inquiry. Brocade earned $20.3 million, or 8 cents a share, a year ago. Fourth-quarter sales fell 6% from a year ago to $145.5 million but still beat estimates by about $1.2 million. Brocade trumpeted a 12% sequential rise in "sell-through" to end users via OEM and channel partners to $160.2 million in the quarter. Brocade said that the difference between reported revenue and sell-through mainly reflects inventory reductions at its OEM partners. "During the fourth quarter, several of the company's OEM partners reduced inventory on-hand by nearly one week across its switch and director product categories," Brocade said. "The company believes that OEM inventories at the end of Q4 05 were approximately two and a half weeks." The difference between revenue and sell-through is the source of the confusion about the company's guidance. Brocade told investors to expect revenue growth of 8% to 10% -- but the company didn't make clear that it was calculating the percentage off the base of the company's $611 million sell-through.
Select the service that is right for you!COMPARE ALL SERVICES
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
- Real Money + Doug Kass + 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV