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Why Infinera Is Tanking Today

What happened

Despite reporting expectation-topping results, shares of Infinera (NASDAQ: INFN), a maker of optical-equipment, fell 23% as of 11:35 a.m. EST on Thursday. Investors can blame the plunge on a surprise restructuring plan and weak guidance.

So what

Here's an overview of headline numbers from the company's third quarter:

  • Revenue grew 4% to $193 million. That was at the high end of management's guidance range and also topped Wall Street's expectation.
  • On a Non-GAAP basis, net loss for the period was $17 million, or $0.11 per share. While bad in absolute terms, this number was also ahead of management's guidance and compared favorably to what market watchers were projecting.
  • Cash usage during the period was $24 million.
  • Cash balance at quarter end was $309 million.

This represents the company's fourth quarter in a row of showing a big net loss. In an effort to right the ship, management surprised investors by announcing a companywide restructuring plan.

Here are a few details:

  • The company is reducing headcount, cutting certain products and programs, and closing down a research and development facility.
  • The one-time costs to execute on this plan will be in the range of $21 million to $27 million.
  • Management expects to realize cost savings of $40 million per year.
  • The majority of this plan will be put into action in the current quarter.

Turning to guidance, here's what Infinera expects to happen in the upcoming quarter:

  • Revenue will land between $185 million and $195 million. That's well below the $207 million that Wall Street was expecting.
  • Non-GAAP EPS will land between -$0.12 and -$0.16. That's also worse than the $0.10 loss that analysts were looking for.

If that wasn't bad enough, CFO Brad Feller stated that double-digit revenue growth isn't likely for full-year 2018. That's bad news since Wall Street was expecting top-line growth in excess of 15%.

Given the weak guidance, it isn't surprising to see that shares are being thrashed on Thursday.

Image source: Getty Images.

Now what

The last two years have been brutal for Infinera's investors, so it is good to see that management is taking action to return the company to profitability as quickly as possible. However, on the company's call with investors, Fallon said that customer consolidation, competitive pressures, and weak customer spending plans are going to make it hard for the company to drive meaningful top-line growth. However, as we've heard before, he still remains optimistic about the company's long-term potential.

Given the market dynamics and weak guidance, I think it is likely that the company's results are going to remain weak for the foreseeable future. For that reason, I have a hard time feeling bullish, even though shares currently sit at a multi-year low.

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Brian Feroldi has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Infinera. The Motley Fool has a disclosure policy.