NEW YORK (TheStreet) -- Ciena (CIEN) shares are soaring following the company's strong second-quarter earnings results. In mid-afternoon trading shares traded at $22.49, up 18%, but remain down about 7% year to date.
Ahead of Thursday's results, Ciena stock was down 22% year to date, punished after management issued worse-than-expected guidance in March for the quarter just reported. But as we discussed Tuesday, this was an overreaction. And following the company's earnings beat and improved guidance, observers owe Ciena an apology for having doubted its abilities.
The company reported revenue of $560 million, up more than 10% from last year's mark of $507 million. Observers were looking for $559.18 million.
Revenue from the company's largest division, converged packet optical equipment, rose roughly 21% year over year to $356.8 million. This segment now accounts for 64% of Ciena's total revenues, inching up 1% sequentially.
The company specializes in broadband, data networking and optical equipment services. Ciena's main customers included (among others) are Verizon (VZ) and AT&T (T). While these are indeed well-respected names, they haven't spent nearly the amount industry experts predicted.
But it looks as if things are beginning to pick up. This quarter, AT&T accounted for 21.5% of Ciena's total revenue, up from 18.8% in the March quarter. And with international revenue now accounting for 42% of total revenue, Ciena has ample options to offset persistent weakness in the U.S.
The company's management has never rested. Nor has it complained. Instead, Ciena has worked to improve its operational efficiency, which resulted in a better-than-expected rise in cash flow and earnings. This was also reflected in Thursday's report.
Gross margin expanded 0.6% in the current quarter to 43.1%. Remarkably, even with 4.5% increase in operating expenses, the company still posted a net loss of $10.2 million, or 10 cents a share, narrowing last year's loss of $27.1 million, or 27 cents a share.
On an adjusted basis, net income was 17 cents per share, beating Street estimates by 4 cents.
As it stands, the company has now delivered in four of its past five reporting periods, including beating adjusted earnings in the March quarter by 116%. Unlike the March quarter, this time management offered better-than-expected guidance.
Management expects third quarter revenue in the range of $585 million to $615 million, with adjusted gross margin in the low-to-mid 40% range. Consensus estimates are calling for revenue of $583.31 million. This means Ciena's low-end range already beats estimates.
With the company still posting solid order growth, analysts will now have to scramble to adjust their revenue and earnings models. Investors should expect several new upgrades for the stock in the next 30 days.
It wasn't a breathtaking quarter, but Ciena's cutting-edge approach to optical networking and traditional packet switching is making a difference. With shares still down year-to-date, an improved spending environment in the second half supports fair value of $25 per share.
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At the time of publication, the author held no position in any of the stocks mentioned.
This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.