It has been about a month since the last earnings report for CommScope (COMM). Shares have lost about 6.3% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is CommScope due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
CommScope Beats Earnings and Revenue Estimates in Q2
CommScope reported decent second-quarter 2020 results, with the top and the bottom line beating the respective Zacks Consensus Estimate.
On a GAAP basis, net loss in the June-end quarter was $335 million or loss of $1.71 per share, which is narrower than net loss of $350.1 million or loss of $1.81 per share in the year-ago quarter.
However, adjusted net income came in at $76.9 million or 32 cents per share compared with $152.8 million or 66 cents per share in the prior-year quarter. The bottom line beat the Zacks Consensus Estimate by 11 cents, with an earnings surprise of 52.4%.
Quarterly net sales fell 18.1% year over year to $2,102.8 million due to reduced spending from cable operators and wireless carriers, mainly in the Home Networks and Outdoor Wireless Networks segments. CommScope estimates that sales were impacted by almost $50 million due to supply constraints related to COVID-19. Nevertheless, the top line surpassed the consensus estimate of $2,050 million.
Sales in Broadband were flat year over year at $671.9 million, as Network Cable & Connectivity and Network & Cloud were unchanged. The segment’s operating income was $8.9 million against an operating loss of $203.5 million in the prior-year quarter.
Sales in Home totaled $624 million, down 31.6% year over year due to declines in Home Media Solutions and Broadband Connectivity Devices. Operating loss was $222.9 million compared with a loss of $28.7 million in the year-ago quarter.
Sales in Outdoor Wireless came in at $328.4 million, down 28.3% year over year due to declines in Macro Tower Solutions and Metro Cell Solutions. Operating income was $51.4 million compared with $104.5 million in the year-ago quarter.
Sales in Venue and Campus were $478.5 million, down 13.2% year over year. This was due to declines in indoor copper and RUCKUS, partially offset by growth in DAS and ONECELL. Operating loss was $32.2 million compared with a loss of $100.5 million in the year-ago quarter.
Overall, gross profit totaled $656.1 million compared with $660 million in the year-ago quarter. Total operating expenses fell to $850.9 million from $869.2 million in the prior-year quarter. Operating loss was $194.8 million compared with a loss of $209.2 million in the prior-year quarter. Adjusted EBITDA was $279.8 million compared with $395.6 million in the year-ago quarter.
Cash Flow & Liquidity
In the first half of 2020, CommScope generated $166.3 million of net cash from operating activities compared with a cash utilization of $261.6 million in the prior-year period. As of Jun 30, the company had $823.4 million in cash and cash equivalents with $9,946.8 million of long-term debt.
Due to uncertainties related to the COVID-19 pandemic, CommScope has provided limited guidance for 2020. It expects sales and adjusted EBITDA for the ongoing quarter to improve modestly on a sequential basis.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates revision. The consensus estimate has shifted -9.57% due to these changes.
Currently, CommScope has a nice Growth Score of B, however its Momentum Score is doing a bit better with an A. Following the exact same course, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, CommScope has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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