Subdued historical performance, however, consensus building in smooth recovery in earnings

Alcatel-Lucent manufactures telecommunications equipment, and offers telecommunications services. The Company's telecommunications equipment and services enable its customers to send or receive virtually any type of voice or data transmission. Alcatel-Lucent designs and builds public and private networks, communications systems and software, and data networking systems.

Constant erosion in turnover

Alcatel-Lucent’s witnessed net sales of Euro14.43 Billion in fiscal year 2013 as compared to Euro14.45 Billion in fiscal year 2012. Further, a time-series analysis reveals that the company’s net sales are on a declining trend since fiscal year 2010. It decreased by Euro1.56 Billion since fiscal year 2010 (negative growth of 10%). Likewise, for the quarter ended Jun’14, the company locked in net sales of Euro3.28 Billion as against Euro3.44 Billion in the corresponding quarter last year, thereby registering a decline of 5%.

Gross margins maintained, however net losses continued, consensus painting a revival in EPS going forward

Although, Alcatel-Lucent has been able to maintain their gross margins which hovered in the range of 32-35% during the last 5 years, the company has been posting net losses largely driven by finance related costs and exceptional items except for the fiscal year 2011. The company’s net loss stood at Euro1.30 Billion for the fiscal year 2013, down by Euro 707 Million as against last year. However, going forward, as per consensus estimates, the company is expected to post marginal profit in the fiscal year 2014 and to further grow in the coming years.

On the EPS front, the company posted negative EPS of Euro 0.54 for the fiscal year 2013 as against negative EPS of Euro0.80 for the fiscal year 2012. During the last 5 years, the company posted positive EPS of Euro0.46 only for the fiscal year 2011, which was largely driven by peak margin (Gross margin stood at 35% for the fiscal year 2011). Going forward, the company is expected to post positive EPS growth on the back of margin expansion.

Cash Positive Company with no pay-outs considering net losses

One favourable point for the company’s capital structure is that the company is cash positive with negative net debt of Euro193 Million as of fiscal year end 2013. Alcatel-Lucent is not a dividend paying company considering the company has been incurring losses in the past few years, thereby restricted to follow an active dividend paying policy.

Stock price performance showing excessive volatility largely led by instability in earnings

Source: finance.yahoo

Consistent weak performance

Summarizing the financial results of Alcatel-Lucent, we could say that the company is witnessing a subdued performance over the last 5 years with revenues falling year after year. Moreover, the company has posted cumulative net losses of Euro3.08 Billion over the last five years which has taken a toll of the return ratios. Return on equity stood at negative 53% for the fiscal year 2013. Even though Alcatel-Lucent is cash positive, the company is not able to pay dividends on account of net losses accruing over the last few years. The only silver lining is that consensus estimate hints that the company will end up registering marginal profit in the current fiscal and expect profits to grow in the years to come on account of margin expansion.