BlackBerry Reports Surprise Profit After Cutting Expenses
BlackBerry (BBRY), which is attempting a comeback with a new lineup of smartphones, reported a surprise profit in the fourth quarter after embarking on a cost-cutting program last year, even as sales continued to trail projections.
Excluding some costs, profit was 22 cents in the period, the Waterloo, Ontario-based company said in a statement. That compared with an average estimate for a loss of 30 cents a share, according to data compiled by Bloomberg. The company said it expects to “approach break-even financial results” this quarter as well, defying predictions for another loss.
The company’s return to profitability “is clearly ahead of schedule,” said Kevin Stadtler, president of Fort Worth, Texas- based Stadtler Capital Management, which owns about 60,000 BlackBerry shares. “The company is making real progress and the BlackBerry 10 product cycle has just begun.”
The company, formerly known as Research In Motion Ltd (BB)., is counting on the BlackBerry 10 lineup to make itself a contender to Apple Inc. (AAPL) and Samsung Electronics Co., letting it reverse a sales decline and maintain profitability. To stay on track, the company will need the Z10 touch-screen model and the Q10, which has a physical keyboard, to be well received, said Pierre Ferragu, a Sanford C. Bernstein & Co. analyst.
“A strong BlackBerry 10 debut should set the company up for a profitable first quarter,” said Ferragu, who is based in London and rates the stock the equivalent of a buy. “Initial corporate demand will be strong.”
The stock was little changed today, closing at $14.45 in New York. The shares have more than doubled in the past six months, fueled by optimism that BlackBerry can regain competitiveness. Still, only seven of 45 analysts who track the stock rate it a buy. The gap between its current share price and analysts’ average price target is the largest of any major company in Canada.
The company also said today that co-founder Mike Lazaridis, a former co-CEO, is stepping down as a director and vice chairman of BlackBerry. He passed the CEO reins to Thorsten Heins in January 2012 after the one-time industry leader lost market share to Apple and Google Inc.’s Android.
As part of his turnaround plan, Heins initiated a cost- cutting program last year to save $1 billion in annual costs. He eliminated 5,000 workers, sold off one of the company’s private jets, and cut the number of manufacturing sites from 10 to four. The company said today it now has about 12,700 employees.
“Not only are we seeing the benefits of our financial results from our cost-reduction program, we’re seeing a new attitude and a cultural shift in the company,” Heins said on a conference call with analysts. “We continue to look at how to innovate faster and how to do things more efficiently.”
Reviving sales is proving more challenging. Revenue in the fiscal fourth quarter, which ended March 2, fell to $2.68 billion, missing the average projection of $2.83 billion. The company shipped about 1 million BlackBerry 10 devices in the period, compared with the 1.1 million average estimate of 10 analysts. It shipped 6 million smartphones in total, missing the 6.9 million estimate.
Interpreting sales data from the quarter is difficult because of the staggered introduction of the Z10. The phone went on sale in the U.K. on Jan. 31, in Canada on Feb. 5, and then across Asia and Europe in the following weeks. It didn’t arrive in the U.S. until March 22, three weeks after the end of the quarter.
Analysts’ early impressions of the Z10’s debut in the U.S., BlackBerry’s biggest market, were mixed. Goldman Sachs Group Inc.’s Simona Jankowski cut her rating on the stock to neutral, based on what she described as “tepid” sales at AT&T Inc (T). Peter Misek of Jefferies & Co. said AT&T’s corporate clients are showing “significant interest” in the phone and “could account for a meaningful portion of demand.” He advises buying the shares.
Sales in the U.S. continue to slide as a share of BlackBerry revenue. They accounted for about 14 percent of total sales last quarter, down from 19 percent three months earlier. The company’s global subscriber base also fell, dropping to 76 million from 79 million.
“The subscriber decline accelerated,” said Tim Long, an analyst at BMO Capital Markets in New York. He rates the stock the equivalent of a sell.
Heins said in an interview with Bloomberg TV’s Jon Erlichman that he’s still open to licensing BlackBerry 10 software should the right partner come along.
“We’re open for partnerships,” he said, adding that positive reviews for BlackBerry 10 and the company’s return to profitability may attract partners.
Despite kicking off its largest marketing campaign ever, including a Super Bowl commercial in February, BlackBerry managed to increase its cash reserves to $2.9 billion by the end of last quarter, up from $2.1 billion a year earlier. That gives it some flexibility in what is still a long road to recovery, Heins said.
“There’s more work to do and delivering BlackBerry 10 and getting back to a profitable quarter is just our starting line, not the finish line,” he said.
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