May 9 (Bloomberg) -- Alcatel-Lucent SA, the French network-equipment maker halfway through a three-year revamp plan, said more profitable products and lower administrative costs helped narrow its first-quarter loss. The stock rose.
The loss was 73 million euros ($101 million), compared with 353 million euros a year earlier, the company said today. Sales were little changed at 2.96 billion euros, excluding its enterprise business being sold. The gross profit margin, or the percentage of revenue left after deducting cost of goods sold, expanded to 32.3 percent from 28.2 percent a year earlier.
Chief Executive Officer Michel Combes, who has promised to cut expenses by 1 billion euros by 2015 and sell another 1 billion euros worth of assets, has reduced costs by 478 million euros so far and divested more than 350 million euros of assets. In February, Paris-based Alcatel-Lucent reported its first quarterly profit in two years.
“Net income was negative because of non-recurring elements like financial and pension costs, as well as restructuring costs,” Chief Financial Officer Jean Raby said in a Bloomberg Television interview. “The first quarter shows another milestone: we’re nearly halfway on our cost-cutting plan, and we still have about 18 months to go.”
Shares of Alcatel-Lucent gained as much as 5 percent and added 3.4 percent to 3.03 euros at 9:39 a.m. in Paris. They have tripled since Combes took over in April last year.
Alcatel-Lucent is looking to stem losses that have plagued the company since it was created through the 2006 merger of Alcatel SA and Lucent Technologies Inc., as rivals also shift strategies rapidly. Nokia Oyj now focuses almost exclusively on network equipment after selling its mobile-phone unit to Microsoft Corp., while Ericsson AB is expanding in services.
Alcatel reaffirmed its goal of generating positive free cash flow in 2015, after consuming 398 million euros in the first quarter.
“Sales are short of what we were expecting, but profitability is improving substantially,” Eric Beaudet, an analyst at Natixis, said in a note to clients. “This comforts us in the company’s ability to reach its 2015 targets.”
Last month, Combes, a former Vodafone Group Plc executive, forecast that demand for network equipment from European carriers will pick up in the next 18 to 24 months. The U.S. is Alcatel’s largest single market, accounting for 42 percent of revenue last year, according to data compiled by Bloomberg.
“I’m starting to hear all the players stating that they will start to reinvest in order not to leave the market to Vodafone and to cable,” Combes said at Bloomberg’s New York offices last month, referring to the U.K. carrier that is boosting network investments across Europe. “The low-cost race in Europe is suicidal -- I am optimistic that it will come to an end.”
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