CommScope's (COMM) Q3 Earnings and Revenues Lag Estimates
CommScope Holding Company, Inc. COMM reported soft third-quarter 2023 results, with the bottom line and top line missing the respective Zacks Consensus Estimate. Lower capital spending from customers, inventory adjustments, macroeconomic challenges and weak demand in several verticals led to top-line contraction year over year.
Net Income
On a GAAP basis, the net loss in the third quarter was $828.7 million or a loss of $3.98 per share against a net income of $22.9 million or 4 cents per share in the year-ago quarter. The significant decline was primarily attributable to top-line contraction and high asset impairment charges during the quarter.
Non-GAAP net income came in at $34 million or 13 cents per share compared with $124.6 million or 50 cents per share in the prior-year quarter. The bottom line lagged the Zacks Consensus Estimate by a penny.
CommScope Holding Company, Inc. Price, Consensus and EPS Surprise
CommScope Holding Company, Inc. price-consensus-eps-surprise-chart | CommScope Holding Company, Inc. Quote
Revenues
Net sales in the reported quarter were $1,599.5 million, down from $2,381.4 million a year ago. The decline was primarily due to weak demand trends in Connectivity and Cable Solutions (CCS), Home Networks and Outdoor Wireless Networks (OWN) segments. The top line missed the consensus estimate by $133 million.
Revenues from CCS were down 37.2% to $632.5 million, induced by sluggish demand for network cable and connectivity, as well as building and data center connectivity. The top line fell short of our estimate of $802.8 million.
Sales from the OWN segment were $210.3 million, down 45% year over year due to lower sales of Base Station Antennas and Heliax products. Net sales missed our estimate of $267.9 million.
Sales in NICS rose 12.1% to $289 million, backed by strength in Ruckus and Intelligent Cellular Networks. Segment revenues missed our estimate of $308.5 million.
Sales in ANS totaled $218.3 million, down 36.2% year over year on inventory adjustments by clients and project delays. Net sales fell short of our estimate of $342 million.
Sales from the Home Networks business declined to $249.4 million from $391.4 million in the year-ago quarter, owing to weak demand for Broadband Home solutions.
Region-wise, revenues from the United States declined 36% to $957.4 million. Europe, the Middle East and Africa reported a 24.8% top-line contraction year over year to $297.8 million. Asia Pacific revenues were $172.2 million, down 18.3% year over year. Caribbean and Latin American revenues fell 49.6% to $74.9 million, while revenues from Canada were $97.2 million, down 25.7%.
Other Details
Gross profit decreased to $546.2 million from $736.3 million in the prior-year quarter due to lower net sales. Total operating expenses increased to $1,372 million from $580.7 million in the year-ago quarter, primarily due to high asset impairment charges. Consequently, CommScope recorded an operating loss of $825.8 million against an operating income of $155.6 million a year ago. Non-GAAP adjusted EBITDA was $248.6 million, down from $347.6 million.
Cash Flow & Liquidity
In the third quarter of 2023, CommScope generated $138.8 million in cash from operating activities against a cash utilization of $87.6 million in the prior-year period. As of Sep 30, 2023, the company had $518.9 million in cash and cash equivalents, with $9,353.3 million in long-term debt.
Outlook
A majority of the customers have reduced purchase volumes in order to right-size their inventories, while some others have paused their capital spending in the wake of macroeconomic factors such as higher interest rates, inflation and concerns about a global economic slowdown. This has softened demand for CommScope’s products. Consequently, management has lowered its guidance for core adjusted EBITDA for 2023 to $1-$1.05 billion from the previous estimation of $1.15-$1.25 billion. The company expects the headwinds to continue in the near term. However, CommScope’s cost-optimization initiatives and investments in broadband and wireless infrastructure are likely to have a positive impact in the long run.
Zacks Rank & Stocks to Consider
CommScope currently has a Zacks Rank #4 (Sell).
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Arista Networks, Inc. ANET, carrying a Zacks Rank #2 (Buy), is likely to benefit from strong momentum and diversification across its top verticals and product lines. The company has a software-driven, data-centric approach to help customers build their cloud architecture and enhance their cloud experience. Arista has a long-term earnings growth expectation of 20.4% and delivered an earnings surprise of 12%, on average, in the trailing four quarters.
It holds a leadership position in 100-gigabit Ethernet switching share in port for the high-speed datacenter segment. Arista is increasingly gaining market traction in 200- and 400-gig high-performance switching products and remains well-positioned for healthy growth in data-driven cloud networking business with proactive platforms and predictive operations.
United States Cellular Corporation USM, sporting a Zacks Rank #1, is the fourth largest full-service wireless carrier in the United States. The company provides a range of wireless products and services, and a high-quality network to increase the competitiveness of local businesses and improve efficiency of government operations.
U.S. Cellular has taken concrete steps to accelerate subscriber additions and improve churn management. The company aims to offer the best wireless experience to customers by providing superior quality network and national coverage. It is well-positioned to support the investment required for network enhancements, including the deployment of 5G technology. The company is well-positioned for continued demand for broadband.
Comtech Telecommunications Corp. CMTL, carrying a Zacks Rank #2, is another solid pick. Headquartered in Melville, NY, the company is a leading global provider of next-generation 911 emergency systems and secure wireless communications technologies to commercial and government customers.
Comtech’s key satellite earth station modems incorporate forward error correction and bandwidth compression technologies, which enable its customers to optimize their satellite networks by either reducing their satellite transponder lease costs or increasing data.
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