Improving gross margins and cost savings are driving a turnaround at Alcatel-Lucent (NYSE: ALU). The networking equipment maker said earlier in October that it would cut 10,000 workers and make other changes that the company expects to result in a 15% savings (about €1 billion) in 2015.
Alcatel-Lucent reported third-quarter results early Thursday morning. The company posted an adjusted earnings per share loss of €0.08 on €3.67 billion in revenues ($0.11 on $5.05 billion). Total revenues rose 7% year-over-year and 3% sequentially. North America posted its second consecutive quarter of nearly 20% year-on-year growth, while China was stable in terms of revenues, and the rest of the Asia Pacific region declined at a low single-digit rate. Sales in Western Europe rose 5% and the rate of decline in Eastern Europe slowed. In the rest of the world, sales were off 9%.
Gross margins rose from 27.8% a year ago to 32.6%, reflecting higher volumes, a more favorable product mix and lower fixed costs. Margins rose 0.7% sequentially mainly as a result of lower fixed costs.
The company did not offer any guidance, but the consensus fourth-quarter estimates call for EPS of $0.02 on revenues of $4.87 billion. For the full year, EPS is forecast at a loss of $0.47 on revenues of $19.38 billion.
Alcatel-Lucent’s new management team is being given the benefit of the doubt when others have not. ADRs in New York trading were up more than 12% at $3.75 in late morning trading on Thursday, against a 52-week range of $0.97 to $4.02. Trading in Paris on its home stock market listing was even better, with gains of more than 17% seen.
Alcatel-Lucent ADRs traded up $0.70 higher than the consensus price target from Thomson Reuters, but it seems safe to assume that the price targets will be ratcheted higher after this report.