Smashing the Street - Tekelec dials in big profits for Q2; stock surges 9%

MORRISVILLE, N.C. – Telecom slowdown? That’s not a term used at Tekelec (Nasdaq: TKLC) these days.

The global telecommunications gear maker, which is based in Morrisville, beat Wall Street expectations with a strong $15.3 million profit in the second quarter. The earnings, which were announced early Wednesday before the markets opened, topped financial analysts’ expectations by a whopping seven cents.

Yes, a 22-cent per share profit by Tekelec - a company that has reorganized, streamlined and developed a new focus under Chief Executive Officer Frank Plastina. Analysts had projected a 15-cent share profit.

However, Tekelec reported a sharp increase in revenue - $116.4 million, a 6 percent increase over a year ago. Analysts had projected $111.3 million in revenues.

The double-doses of good news could mean a jump in TKLC shares today. Tekelec closed at $16.14 on Tuesday, up 69 cents or 4.5 percent. The rebound is carrying Tekelec back close to its 52-week high of $17.73.

In late-morning trading, Tekelec shares jumped nearly 9 percent, or $1.43, to $17.57.

In the first quarter, Tekelec posted a 19-cent share profit (25 cents if one-time expenses/charges are excluded) on revenues of $118.2 million. By the way, both figures topped analysts’ expectations.

So what’s driving the good news? Tekelec, which bases most of its more than 900 employees in the Triangle, reported a 45 percent increase in orders, or $122.9 million, compared to the same quarter a year earlier.

The company is focused on enabling telecommunications and network providers deliver advanced services, such as text messaging and multimedia. And the market for its services is growing as carriers try to capitalize on services that drive additional revenue. Among Tekelec’s biggest wins recently is a contract with the largest wireless provider in Pakistan - Pakistan Mobile Communications Limited, also known as Mobilink.

Don’t scoff at that, either. Wireless outside the U.S., especially in lesser developed countries, is booming since the cost of installing traditional landline networks is so expensive compared to cell towers and wireless.

Plus, Tekelec’s backlog of orders seems to indicate further strong performance. Tekelec has $387.6 million in “backlog,” compared to $381.2 million as of March 31.

Through the first six months of 2008, Tekelec’s orders are up 25 percent, and overall revenues have increased 7 percent compared to 2007.

And in a figure analysts watch closely, Tekelec improved its margins to 14 percent vs. 2 percent a year ago.

In a statement released with the earnings, Plastina was downright joyful.

“We were very pleased by our strong operating performance for the second quarter and first half of the year,” he said. “Our level of new orders was particularly strong compared to a year ago and reflects our continued success in generating new customer wins and in responding to demand from existing customers for signaling capacity and other Tekelec products. We were also pleased by the continued strength of our operating margins and strong cash flows during the first six months of 2008."