Action in communications and network equipment company Viavi (VIAV 10.00, +1.33 +15.5%) moves the stock to nearly six-month highs dating back to September after the company reported a strong Q2 beat and announced the acquisition of the Test and Measurement business of Cobham plc (CBHMF 1.95, flat) for $455 million cash consideration.
Simply put, the stock is reacting favorably as Q2 earnings of $0.09 per share and revenue declines of 2.3% to $201.8 million were enough to outperform the Street. Additionally, gross margins of 57.5% were down 290 basis points year-over-year.
Overall, the company’s Network and Service Enablement results were modestly behind last year’s levels. While the larger Network Enablement segment saw net revenues increase to $121.5 million, results were lagged by waning revenues out of the Service Enablement segment – down 20.9% year-over-year to about $32.1 million.
Management highlighted that strong service providers' end market demand drove year-on-year revenue increase in the Network Enablement segment and Optical Security and Performance Products’ core business was stronger than expected.
As for guidance, VIAV sees Q3 EPS of $0.08-0.10 on revenues between $190-210 million.
As mentioned, VIAV also announced an acquisition; the company signed a definitive agreement to acquire the Test and Measurement business of Cobham plc for $455 million cash consideration. The deal is expected to close during the second half of VIAV’s fiscal year 2018. Upon closing, the transaction is expected to be meaningfully accretive to VIAV’s free cash flow and non-GAAP earnings per share and monetize net operating losses (NOLs).
The transaction will strengthen the company’s competitive position in 5G deployment and diversifies the company into military, public safety and avionics test markets.