Alcatel Lucent SA share price up, narrows first-quarter loss, reaffirms turnaround goal

French network-equipment maker Alcatel Lucent SA reported on Friday that it managed to reduce its first-quarter net loss, spurring confidence among investors that Chief Executive Officer Michel Combes three-year turnaround plan is likely to succeed.

The company announced its net loss for the first quarter fell to 73 million euros, compared to 353 million euros a year ago, as a result of its cost cutting program and the reduction of unprofitable contracts. The companys gross profit margin rose to 32.3% from 28.2% in the comparable period a year earlier.

Revenue rose 0.3% to 2.96 billion euros. Operating income was up 33 million euros, rebounding from a 179-million-euro loss last year. The company posted its first quarterly profit in two years in February as its operating margin widened to 7.8% from 2.8% in 2012s last quarter.

Alcatel-Lucent is halfway through its three-year revamp plan, according to which Chief Executive Officer Michel Combes aims to cut expenses by 1 billion euros, divest $1 billion euros worth of assets and axe 10 000 jobs. Apart from trimming unprofitable contracts, the company will also seek to reposition itself on fewer contracts. So far, at middle of the course, Mr. Combes has managed to reduce expenses by 478 billion euros and has sold 350 million euros worth of assets.

Chief Financial Officer Jean Raby said for Bloomberg that the first-quarter loss was due to non-recurring elements like financial and pensions costs, as well as restructuring costs. “The target remains very relevant and were focused on it,” said Raby in a conference call.

Free cash flow remained negative at 398 million euros, but the Paris-based network-equipment maker reiterated its goal of generating positive cash flow upon completing its three-year overhaul plan in 2015.

Analysts at Liberum said in a note, cited by Reuters: “These results suggest that the ongoing turnaround at Alcatel-Lucent continues to gain steam, with both profitability and cash flow expected to improve strongly this year.”

Alcatel said that its product areas such as core routing, optical transport and fixed line access are seeing strong demand and that trend should continue. In April, Mr. Combes predicted increased demand from European carriers for network equipment over the next two years, while the U.S., which accounted for 42% of Alcatels sales in 2013, will remain its biggest market.

As for the Chinese market, Jean Raby said the companys wireless business in the worlds second-biggest economy would generate top-line growth, but would drag on gross margins in the second quarter of the current year.

Alcatel Lucent SA opened nearly 5% higher in Paris and was up 2.32% at 3.00 euros by 09:32 GMT, marking a one-year change of +172.63%. The company is valued at 8.25 billion euros. According to the Financial Times, the 23 analysts offering 12 month price targets for Alcatel Lucent SA have a median target of 3.25 euros, with a high estimate of 5.00 euros and a low estimate of 0.7117 euros. The median estimate represents a 10.81% increase from the previous close of 2.93 euros.