November 4, 2009 / 7:37 PM / 8 years ago

PREVIEW-RuggedCom Q2 profit likely to miss market view

* What: RuggedCom Q2 results

* When: Nov 5

* Q2 EPS likely to miss market consensus

* Currency, pricing pressure to weigh on margins

* Stimulus spending on smart grids to benefit long term

By R. Manikandan

BANGALORE, Nov 4 Reuters) - Canadian communications equipment maker RuggedCom Inc’s RCM.TO second-quarter profit is likely to miss analyst consensus as margins are hurt by a weak U.S. dollar and pricing pressures in Asia.

RuggedCom, whose customers include ABB (ABB.N) and General Electric (GE.N), makes communication equipments like Ethernet switches, network routers and wireless devices that are used in harsh environments like in electrical power grids.

“We’re expecting gross margin to be lower from a combination of a sequentially stronger Canadian dollar, competitive pricing pressure and product mix,” analyst Kris Thompson of National Bank Financial said.

“We view the potential for management to lower gross margin guidance as the key risk to the stock.”

RuggedCom, however, is expected to benefit from year-over-year revenue growth in the second quarter as the bulk of quarterly orders in first quarter were shipped in the second quarter.

For the second quarter ended Sept. 30, analysts on average expect the company to earn 17 cents a share, on revenue of $17.1 million, according to Thomson Reuters I/B/E/S.

However, in the long-term, RuggedCom is poised to benefit from the trend towards grid modernization.

GROWTH FROM GRID UPGRADES

Utilities are in the process of updating their infrastructure, by deploying smart grid that delivers electricity from suppliers to consumers using digital technology, which saves on energy, reduces cost and increases reliability and transparency.

“Utilities is (RuggedCom‘s) main market segment and will continue to be the main driver of the company going forward,” analyst Steve Li of Industrial Alliance Securities said.

On Oct. 27, President Barack Obama announced the recipients of $3.4 billion in government grants to help build smart electric grids. These grants will be supplemented by $4.7 billion in matching private funds. [ID:nN27121152]

RuggedCom is a leading supplier of networking equipment used in substation automation and at least half of the 100 winners of the grants are customers of RuggedCom.

“We think RuggedCom will continue to show high growth but it will not be in a straight line and expect the company to have some quarters that will not meet expectations,” analyst Manish Grigo of Toll Cross Securities said.

“However, the trajectory for this stock is northwards.” Shares of RuggedCom were trading down 30 Canadian cents, at C$17.85 Wednesday afternoon on the Toronto Stock Exchange. (Reporting by R. Manikandan in Bangalore; Editing by Anthony Kurian)

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