Lucent's Back in the Black - TheStreet

Lucent's Back in the Black

The company posts a surprise profit despite a revenue shortfall.
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Lucent

(LU)

made good on its many promises Wednesday, posting a surprising fiscal fourth-quarter profit.

For the fourth quarter ended Sept. 30, the Murray Hill, N.J., maker of telecom gear posted a profit of $99 million, or 2 cents a share, reversing the year-ago loss of $2.81 billion, or 84 cents a share. Analysts had expected the company to post a 4-cent loss in the latest quarter.

The fourth-quarter shocker represents a sharp turnaround for the company, which just last quarter

disappointed investors with news of trouble with a big overseas wireless customer. Just a week later, though, Lucent

signaled its determination to return to the black sometime during the coming year.

It wasn't all silver and gold for Lucent, though. Fourth-quarter revenue rose 3% sequentially to $2.03 billion but fell 10% from a year ago and came up short of the $2.1 billion Thomson First Call consensus estimate. And Lucent noted that the latest-quarter profit was aided to the tune of about 2 cents a share by a reduction of reserves for restructuring actions, bad debt and financing recoveries and customer and supplier credits. Investors don't like to hear that because those items aren't predictable from quarter to quarter and therefore represent a low-quality source of earnings.

Indeed, CEO Patricia Russo said the company "will still have some ups and downs on the way to sustained profitability." CEO Frank D'Amelio noted a surge in gross margin to 43% from 29%, driven by cost cutting and product mix, but said the margin improvement "is not a rate we expect to maintain during fiscal 2004."

Lucent declined to give 2004 guidance, saying only that it expects to return to the black for good sometime during the year, on flat revenue. The company expects margins to hang around 35%. Analysts expected the company to break even in the first quarter on revenue of $2.2 billion.

The company also took a $594 million charge to equity for management pension plans during the quarter.

Lucent shares closed at $2.45 Tuesday.