NEW YORK (CNNfn) - 3Com Corp. reported a fiscal second-quarter operating profit Tuesday of $130.9 million, beating Wall Street estimates as cost-cutting measures offset a decline in sales.|
The company also warned that third-quarter revenues will likely decline from second-quarter levels, citing seasonal factors and Y2K-related concerns from its large, corporate networking customers.
Excluding one-time items, the Santa Clara, Calif.-based data-networking equipment maker reported earnings of 37 cents a share. Analysts polled by First Call expected 3Com (COMS) to earn 34 cents a share in the quarter. Revenue declined 4 percent to $1.48 billion.
The companyís operating results exclude a net gain of $71.3 million from the sales of investments and a $5.9 million charge for corporate realignment costs. Including those items, 3Com posted a profit of $177.3 million, or 51 cents a share.
3Com announced its earnings results after markets closed.
After closing up 4-1/4 at 53-1/8 prior to the earnings announcement, 3Com shares dropped 3-7/8 to 49-1/4 in after-hours trade.
3Q sales to slip
While sales of personal productivity products - which include cable and DSL modems for high-speed Internet access - grew 15 percent sequentially to $620.9 million, revenue from 3Comís core networking products declined 12 percent from the first quarter to $593.2 million.
Eric Benhamou, 3Com chairman and chief executive officer, attributed part of that decline to large firms freezing large-scale purchases due to Y2K-related issues. He noted, however, that most of the drop in networking sales was related to execution issues within 3Comís control.
Christopher Paisley, 3Com chief financial officer, said third-quarter revenues would likely decline sequentially from second-quarter levels, noting seasonal factors and particularly strong results from its hand-held computing and personal productivity units.
"We believe any lingering Y2K concerns could cause some customers to continue to delay purchases,Ē Paisley said.
Paisley added, however, that 3Comís third-quarter sales should be "comparableĒ with last-yearís third-quarter sales of $1.41 billion. He also noted that third-quarter pro-forma earnings per share results should be comparable with the 24 cents a share the company earned a year ago.
While beating Wall Street forecasts, 3Com fell off its year-ago operating results, when it logged a profit of $133.4 million, or 36 cents a share, on $1.54 billion in revenue.
"We continue to make progress on all three key fiscal 2000 objectives: refining our strategy, transforming our growth profile and streamlining operations," Benhamou said. "Supply chain management continues to improve, our balance sheet has never been stronger, the Palm IPO is on track for early calendar 2000 and we are gaining momentum in several emerging high-growth markets.Ē
Palm sales strong
While overall sales declined, revenue from hand-held computing products rose 50 percent from first-quarter levels to $260.9 million.
Last week, 3Comís Palm Computing subsidiary, which makes the popular Palm series of hand-held computers, filed for an initial public offering that could raise as much as $100 million.
3Com said cash and short-term investments grew to more than $2 billion as the company reduced its inventory levels and cash-conversion cycles.
However, Paisley said 3Com expects a rise in third-quarter expenses as the firm builds the Palm Computing brand and develops the infrastructure for the Palm unit to run as an independent company.
For the first six months of fiscal 2000, 3Com had a profit of $314.8 million, or 89 cents a share, on $2.86 billion in revenue, compared to first-half 1999 earnings of $226.6 million, or 62 cents a share, on $2.9 billion in revenue. Those results include one-time items.
Separately, Paisley said he intends to retire next summer to spend more time with his family and pursue a career in teaching.