Tuesday, October 8, 2013

BlackBerry Company Earnings Mostly Meaningless

Just one week ago, BlackBerry Ltd. (NASDAQ: BBRY) issued a warning on second-quarter results that sent the stock plunging. The stock closed Thursday down nearly 25% since that announcement. The Friday morning press release from BlackBerry will not improve the situation.

The smartphone maker reported an adjusted diluted earnings per share (EPS) loss of $0.47 on revenues of $1.57 billion. In the same period a year ago, BlackBerry reported an EPS loss of $0.27 on revenue of $2.86 billion. Second-quarter results compare to consensus estimates for an EPS loss of $0.49 and $1.61 billion in revenue. As recently as 90 days ago, BlackBerry was expected to post positive earnings.

On a GAAP basis, the company posted an EPS loss of $1.84, which does not include non-cash, pre-tax charges of a $934 million inventory charge on its Z10 touchscreen smartphone and a $72 million restructuring charge. The inventory charge is less than the $950 million estimate BlackBerry gave last week.

BlackBerry said it recognized revenue on 3.7 million smartphones, most of which were the older models based on the BlackBerry 7 operating system. The company will not recognize revenue on the new Z10 and Q10 phones it shipped until the units are sold through to customers. BlackBerry sold 5.9 million units to end users in the second quarter. The company did not say how many units it shipped in the quarter.

The company's CEO said:

We are very disappointed with our operational and financial results this quarter and have announced a series of major changes to address the competitive hardware environment and our cost structure. … We understand how some of the activities we are going through create uncertainty, but we remain a financially strong company with $2.6 billion in cash and no debt. We are focused on our targeted markets, and are committed to completing our transition quickly in order to establish a more focused and efficient company.

Gross margins as reported were negative 24%. On an adjusted basis, gross margin rose from 34% in the first quarter to 36%. That is the only good news.

The buyout offer at $9 a share has lost its appeal for investors, who apparently do not believe that anyone would be foolish enough to pay that much for the failing phone maker. In its press release, BlackBerry said nothing about the company's future, but in reality nothing else matters.

The consensus estimates for the third quarter call for an EPS loss of $0.32 on revenues of $2.03 billion. Given the high levels of uncertainty about BlackBerry's future, those numbers are almost certainly just wishful thinking.

Shares are up about 0.6% in premarket trading, at $8.00 in a 52-week range of $7.27 to $18.32. The consensus analyst price target was around $8.75 before today's results were announced.

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