UPDATE 2-Alcatel-Lucent cuts Q1 loss, pursues turnaround

Fri May 9, 2014 4:05am EDT

* Share price biggest gainer in CAC-40 index, up nearly 5 pct

* Analysts say results show turnaround plan working

* CFO says working on asset sales

* Free cash flow remains negative (Adds share price, analyst comment, data)

By Leila Abboud and Alexandre Boksenbaum-Granier

PARIS, May 9 (Reuters) - Telecoms network equipment maker Alcatel-Lucent reduced its first-quarter net loss to 73 million euros ($101 million) from 353 million euros a year ago, the company reported on Friday, as it cut costs and trimmed unprofitable contracts.

Restructuring costs and lower-margin Chinese mobile contracts weighed on profitability, but the results showed progress in the turnaround programme started by Chief Executive Michel Combes last June.

The firm's shares were up nearly 4 percent at 3.045 euros by 0752 GMT, having opened trading nearly 5 percent higher, making them the biggest gainers in the French market's CAC 40 index .

Combes is aiming for 10,000 job cuts, 1 billion euros asset sales, 1 billion euros in cost cuts, and a repositioning of the group on fewer products.

The Paris-based company, which competes with Sweden's Ericsson, China's Huawei and Finland's Nokia , has not posted regular profits since it was created in a transatlantic merger in 2006, hampered by its relatively small size in mobile and hit by tough competition with low-cost rivals.

Chief Financial Officer Jean Raby said the company was working on "a number of things" on asset sales, and reaffirmed an earlier target of 1 billion euros of divestments by end-2015.

"The target remains very relevant and we're focused on it," said Raby during a conference call with reporters on first-quarter results.

Raby said that the firm's Chinese wireless business would drive the top line, but would weigh on gross margins in the second quarter.

The firm achieved 143 million euros worth of savings on fixed costs in the first quarter and posted adjusted operating income of 33 million euros, reversing a 179 million loss last year.

Free cash flow remained negative at 398 million euros, while revenue was up 0.3 percent at 2.96 billion euros. The earnings were adjusted for the sale of the enterprise business in March.

"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," analysts at Liberum said in a note.

It added that the company's products in areas like IP edge and core routing, optical transport and fixed line access are seeing strong demand currently, which is expected to continue.

In the last quarter of 2013 Alcatel-Lucent posted its first quarterly profit since March 2012, with its operating margin widening to 7.8 percent from 2.8 percent in the final three months of 2012. ($1=0.7214 euros) (Writing by Geert De Clercq; Editing by Greg Mahlich)