Extreme, Redback post strong earnings

Extreme posted a second-quarter profit of $12.6 million, or 11 cents a share, on sales of $144.7 million Wednesday, matching most analysts' estimates.

First Call consensus pegged Extreme for a profit of 11 cents a share on sales of $142.3 million.

Ahead of the earnings report, Extreme shares moved up $4.69 to $47.88.

The $144.7 million in sales marks a 163 percent improvement from the year-ago quarter, when it earned $6.4 million, or 6 cents a share, on sales of $55 million.

Including a variety of one-time charges, Extreme posted net income of $8.1 million, or 7 cents a share, compared with a profit of $4.5 million, or 4 cents a share, in the year-ago period.

"We're extremely pleased with our second-quarter results," CEO Gordon Stitt told analysts during a conference call. "While there are concerns in some sectors regarding the current economic climate, it's unclear whether this will affect our sales in the next few quarters."

Despite the decent earnings, Extreme shares fell to $41.25 in after-hours trading, mainly because the company didn't deliver the upside surprise that fellow equipment makers Redback and Juniper Networks did in the same period.

Gina Sockolow, an analyst at Brean Murray, expected sales of $153 million and earnings of 12 cents a share.

Shares behaving literally
Extreme shares have lived up to their name in the past month, surging to $82.25 on Dec. 12, tumbling to $27.63 a share on Jan. 2, and then rebounding to around $50 this week.

Tad LaFountain, analyst at Needham, upgraded the stock Jan. 3 to a "buy" rating before downgrading it to a "hold" Tuesday.

Stitt said Extreme's book-to-bill ratio was well above 1-to-1 in the quarter and that it delivered more than 2 million ports in 2000.

Extreme said it will begin releasing a series of new products in the next few quarters to spur revenue growth and improve gross profit margins.

CFO Vito Palermo told analysts to expect fiscal 2001 sales in the range of $615 million to $635 million and sales of $950 million to $1 billion in fiscal 2002.

The company expects to post gross profit margins between 52 percent and 54 percent in the coming year, up from the 51.8 percent it enjoyed this quarter.

It exited the quarter with more than $276 million in cash and short-term investments.

Its shares raced up to a 52-week high of $128.88 in October after falling to a low of $21.19 in May.

Thirteen of the 15 analysts following the stock maintain either a "buy" or "strong buy" recommendation. Analysts are forecasting a profit of 50 cents a share in the fiscal year.

Redback by a penny
Redback tiptoed past analysts' estimates in its fourth quarter Wednesday, posting a profit of $7.8 million, or 5 cents a share, on sales of $114.6 million.

First Call consensus expected it to earn 4 cents a share on sales just north of $100 million.

Redback shares closed up $2 to $48.56 ahead of the earnings report.

The $114.6 million in sales represents a 339 percent improvement from the year-ago quarter, when it earned $2 million, or 2 cents a share, on sales of $26.1 million.

For the fiscal year, Redback pocketed $6.8 million, or 4 cents a share, on sales of $278 million compared with a loss of $3.8 million, or 7 cents a share, on sales of $64.3 million in fiscal 1999.

CEO Vivek Ragavan said that while gross profit margins in the quarter were only 54.3 percent in the quarter, down from 60.2 percent in the third quarter, the company's new product mix will offset any temporary pricing issues.

"We're willing to accept short-term fluctuation in gross margins," he said during a conference call. "Much has been said and written about the economy as a whole, but we remain optimistic."

International sales accounted for 38 percent of total sales in the quarter and improved 123 percent from the prior quarter.

"Bookings are strong across all product lines," CFO Craig Gentner said. "We're projecting sequential revenue growth of 20 percent through the rest of the year."

Gentner said the declining gross margins were mainly a result of a shifting product mix, more international customers, and a higher mix of large customers.

"Gross margins were down for all the right reasons," he said.

Gentner, who announced he will step down to tend to family medical issues sometime this quarter, said the company expects first-quarter earnings to come in near the low end of analysts' estimates.

First Call consensus pegs Redback for a profit of 5 cents a share on sales of $120.4 million.

Last quarter, Redback hurdled analysts' estimates, pocketing $3.2 million, or 2 cents a share, on sales of $80.6 million.

The stock moved as high as $198.50 in March before falling to a low of $28 earlier this month.

Nineteen of the 20 analysts following the stock rate it either a "buy" or "strong buy."