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CommScope Holding Company, Inc. COMM reported relatively healthy first-quarter 2021 results, wherein the bottom line and the top line beat the respective Zacks Consensus Estimate. With solid order trends, the company expects this growth momentum to continue amid post-pandemic market revival, backed by industry tailwinds such as 5G and mobile network densification, indoor coverage and expansion of optical fiber networks.
On a GAAP basis, net loss in the March quarter was $97.6 million or loss of 55 cents per share compared with net loss of $159.9 million or loss of 89 cents per share in the year-ago quarter. The year-over-year narrower loss was primarily attributable to top-line growth.
Quarterly adjusted net income came in at $88.3 million or 36 cents per share compared with $27.2 million or 12 cents per share in the prior-year quarter. Also, the bottom line beat the Zacks Consensus Estimate by 5 cents.
CommScope Holding Company, Inc. Price, Consensus and EPS Surprise
CommScope Holding Company, Inc. price-consensus-eps-surprise-chart | CommScope Holding Company, Inc. Quote
Quarterly net sales improved 1.9% year over year to $2,072 million largely due to higher sales in the Broadband Networks segment. The top line beat the consensus estimate of $2,012 million. Region wise, revenues increased in Asia Pacific (up 27% to $225.4 million) and Caribbean and Latin America (21.3%, $192.1 million), partially offset by decline in United States (down 2.3% to $1,191.9 million), Europe, Middle East and Africa (EMEA) region (2.4%, $385.7 million) and Canada (5.9%, $76.9 million).
Quarterly Segment Results
Sales in Broadband Networks increased 28.9% year over year to $790.7 million, driven by growth in Network Cable and Connectivity, and Network and Cloud. The segment witnessed growth in all regions except Europe, as operators aimed to increase fiber connectivity with add-on investments for capacity enhancements. Higher node-splitting to address pressure on the uplink and amplifier upgrades further acted as catalysts. Operating income was $57.3 million against operating loss of $23 million in the prior-year quarter.
Sales in Outdoor Wireless came in at $322.5 million, down 7.6% year over year due to decline in Macro Tower Solutions. The company recorded lower sales in North America and Middle East and Africa, partially offset by growth in Asia Pacific and Europe. Operating income was $51.3 million compared with $65.7 million in the year-ago quarter.
Sales in Venue and Campus remained flat at $469.6 million as growth in RUCKUS Networks was offset by decline in indoor copper, fiber and small cell. Region wise, lower sales across North America were offset by growth in China, Caribbean and Latin America and Europe. Operating loss was $65.2 million compared with operating loss of $35.7 million in the year-ago quarter.
Sales in Home totaled $489.2 million, down 18.7% year over year due to decline in video and broadband gateways. Net sales declined across all regions except Caribbean and Latin America and Middle East and Africa. Operating loss was $34.5 million compared with operating loss of $38.8 million in the year-ago quarter. Notably, in April 2021, CommScope announced that it intends to separate its Home Networks business to create an independent publicly traded entity. The tax-free spin-off is part of CommScope NEXT, a long-term growth strategy that focuses on eliminating redundant processes, and non-value-added complexity and costs to bolster business optimization.
Gross profit improved to $672.2 million from $641.2 million in the year-ago quarter due to higher sales. Total operating expenses in the quarter decreased to $663.3 million from $673 million. Operating income was $8.9 million against operating loss of $31.8 million in the prior-year quarter. Adjusted EBITDA was $289.7 million compared with $231.2 million a year ago.
The spin-off is specifically designed to improve channel relationships and develop avant-garde technologies to pave a path toward value creation and profitable growth. Apparently, the segment did not get sufficient capital and recognition to tap lucrative opportunities. Hence, it is expected to not only boost future revenues on the back of cost-reduction efforts but also optimize the business portfolio with right investment amid an evolving marketplace. The spin-off will enable both CommScope and Home Networks to drive innovation while enabling the latter to focus more on go-to-market strategy and develop technologies for enhanced home and consumer products on the back of a resilient manufacturing model. The restructuring will also provide enough flexibility to Home Networks business with a dedicated research & development team that will be responsible for stimulating growth in a “Connected Home” future.
Cash Flow & Liquidity
In the first three months of 2021, CommScope utilized $124 million cash in operating activities compared with cash utilization of $42.7 million in the year-ago period. As of Mar 31, 2021, the company had $325.9 million in cash and cash equivalents with $9,486.7 million of long-term debt. The company had no outstanding debt under its asset-based revolving credit facility and had a borrowing capacity of $686.9 million.
Zacks Rank & Other Stocks to Consider
CommScope currently has a Zacks Rank #2 (Buy). Some other top-ranked stocks in the broader industry are Corning Incorporated GLW, Clearfield, Inc. CLFD and Nokia Corporation NOK, each carrying a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Corning has a long-term earnings growth expectation of 17.7%. It delivered an earnings surprise of 39%, on average, in the trailing four quarters.
Clearfield delivered a trailing four-quarter earnings surprise of 79.8%, on average.
Nokia has a long-term earnings growth expectation of 1.5%. It delivered an earnings surprise of 215.2%, on average, in the trailing four quarters.
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