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Motorola (MSI) Up 9.8% Since Last Earnings Report: Can It Continue?

Zacks Equity Research

A month has gone by since the last earnings report for Motorola (MSI). Shares have added about 9.8% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Motorola due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Motorola Trumps Q2 Earnings Estimates, Raises Guidance

Motorola reported solid second-quarter 2019 results with year-over-year increase in revenues and earnings, driven by strength in both segments and diligent execution of operational plans. The company is well poised to sustain its momentum throughout the year with healthy demand across its portfolio and record order backlog.  

Net Earnings

On GAAP basis, net earnings were $207 million or $1.18 per share compared with $180 million or $1.05 per share in the year-earlier quarter. The year-over-year rise was primarily attributable to top-line growth.

Non-GAAP earnings per share were $1.69 compared with $1.46 in the year-ago quarter. The bottom line beat the Zacks Consensus Estimate by 9 cents.

Revenues

Quarterly net sales were $1,860 million compared with $1,760 million in the year-ago quarter, primarily driven by growth in both the segments and solid performance in the Americas. The top line exceeded the Zacks Consensus Estimate of $1,849 million.

Organic growth for the quarter was 4%, while acquisitions contributed $33 million to incremental revenues. Region wise, revenues improved 11% in the Americas to $1,347 million driven by broad base growth across all platforms. This was partially offset by 7% decline each in EMEA (Europe, Middle East and Africa) to $356 million and Asia Pacific to $157 million, owing to adverse foreign currency translation.

Segment Results

Net sales from Products and Systems Integration were $1,238 million compared with $1,189 million in the prior-year quarter, largely due to growth in the Americas. The segment’s backlog was down $48 million primarily due to two large system deployments in the Middle East and Africa, and currency woes.

Net sales from Services and Software totaled $622 million compared with $571 million a year ago, with growth in the Americas and EMEA. The segment’s backlog increased $1.5 billion year over year, primarily due to growth in the Americas and the Airwave contract extension through the end of 2022.

Other Quarterly Details

GAAP operating earnings increased to $349 million from $273 million in the prior-year quarter, while non-GAAP operating earnings were $444 million, up 17%. The company ended the quarter with total backlog of $10.9 billion, up $1.5 billion.

Overall GAAP operating margin jumped to 18.8% from 15.5% in the prior-year quarter, primarily due to higher revenues. Non-GAAP operating margin was 23.9% compared with 21.5% in the year-ago quarter.

Non-GAAP operating earnings for Products and Systems Integration were $242 million, up 7% year over year. Non-GAAP operating margin for the segment was 19.5%, up from 19% due to higher sales.

Non-GAAP operating earnings for Services and Software were $202 million, up 33% year over year driven by gross margin expansion and higher sales for non-GAAP operating margin of 32.5%, up from 26.6%.

Cash Flow & Liquidity

Motorola generated $251 million of cash from operating activities during the quarter compared with $425 million a year ago. Free cash flow was $188 million. As of Jun 30, 2019, the company had $953 million of cash and cash equivalents with $5,315 million of long-term debt.

Outlook Raised

Owing to solid quarterly revenue and earnings growth, management raised guidance for 2019. Full-year non-GAAP earnings are currently anticipated to lie within the $7.67-$7.77 per share range, up from $7.60-$7.72 expected earlier on revenue growth of 7-7.5%, up from prior expectations of 6-7% rise. Third-quarter 2019 non-GAAP earnings are expected to be in the $1.91-$1.96 per share range on revenue growth of 6.5%.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates review. The consensus estimate has shifted -6.46% due to these changes.

VGM Scores

Currently, Motorola has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with an F. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. Notably, Motorola has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.



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