ADC Telecommunications falls on lower Q1 outlook

Shares of ADC Telecommunications Inc. fell Friday after the company posted a net loss in the fourth quarter and warned that first-quarter earnings will come in lower than expected.

ADC said sales in the first quarter should come in between $250 million to $275 million, with a loss of 15 cents to 5 cents per share including a non-cash amortization expense of 5 cents per share. Analysts polled by Thomson Reuters had been expecting a first-quarter profit of 11 cents per share on revenue of $274 million.

While the first quarter is seasonally slower than the fourth, ADC said the decline will be sharper this year because of lower spending by major phone companies.

Jefferies & Co. analyst George Notter said the first-quarter's outlook is likely due to a customer, Verizon Communications Inc., reducing its inventory levels. ADC sells network equipment, software and other services for communications networks.

Notter was disappointed that ADC's operating expenses rose in the fourth quarter from the third quarter, given that it had cut jobs. He doesn't see costs falling for a while.

The analyst noted that ADC's network solutions business continues to post "significant" operating losses, but management seems to have an "increased urgency" to fix the unit.

Notter kept his "Buy" rating on the company but cut his 2010 revenue estimate to $1.14 billion from $1.16 billion and earnings to 45 cents per share from 65 cents.

On Thursday, ADC said it lost $19.2 million, or 20 cents per share, in a shortened fourth quarter. The quarter only had two months and ended Sept. 30 because changed its fiscal year to close in September instead of Oct. 31.

Excluding after-tax charges of $25.5 million, ADC earned $6.3 million, or 6 cents per share. Revenue was $183.9 million. Analysts were expecting a profit of 4 cents per share on revenue of $170 million.

Shares of ADC, based in Eden Prairie, Minn., fell 81 cents, or 12.2 percent, to $5.83 in afternoon trading.