Why Adtran Stock Withered on Wednesday

Not many investors were calling on Adtran (NASDAQ: ADTN) stock on Hump Day. Shares of the telecom equipment provider lost nearly 14% of their value that trading session, after the company published preliminary quarterly earnings that Mr. Market found wanting.

Grumbling about guidance

Investors were disappointed mainly because Adtran cut its revenue forecast for its second quarter. It now expects $280 million to $282 million for the period, down from the previous estimate of $283 million to $303 million.

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On the bottom line, Adtran continues to anticipate that its net loss under generally accepted accounting principles (GAAP) will land at $0.12 to $0.14 per share. That picture changes drastically under non-GAAP (adjusted) standards; the forecast is a profit of $0.03 to $0.05 per share for the quarter.

The company attributed the downgraded revenue forecast to a project delay from one of its clients, which it did not name. It added that the bottom line will be affected by higher component and freight costs.

Looking slightly ahead, Adtran said it expects third-quarter revenue of $275 million to $295 million, with an operating margin of 1.5% to 5.5%. The average analyst top-line estimate, however, is over $301 million. The company did not provide a forecast for net loss or profit.

Adtran is slated to publish its audited second-quarter results after market close on Monday, Aug. 3.

Reasons to be hesitant

While I wouldn't necessarily sell Adtran stock if I were a shareholder, the fact that the company's having difficulties with a clearly important client is concerning. I'd want to know more about this customer, not least the factors behind the delay and the prospects for resolving it. As long as we're in the dark, I'd hold off on investing in this stock.

Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.