Motorola Solutions, Inc. MSI reported relatively healthy third-quarter 2020 results, driven by diligent execution of operational plans. Despite surpassing the respective Zacks Consensus Estimate, revenues and adjusted earnings decreased year over year due to coronavirus-induced adversities.
On a GAAP basis, net earnings in the reported quarter were $205 million or $1.18 per share compared with $267 million or $1.51 in the year-earlier quarter. The decline was primarily attributable to top-line contraction due to demand-related challenges amid the virus outbreak.
Excluding non-recurring items, non-GAAP earnings in the quarter were $1.95 per share compared with $2.04 in the year-ago quarter. The bottom line beat the Zacks Consensus Estimate by 19 cents.
Motorola Solutions, Inc. Price, Consensus and EPS Surprise
Motorola Solutions, Inc. price-consensus-eps-surprise-chart | Motorola Solutions, Inc. Quote
Quarterly net sales fell 6.3% year over year to $1,868 million due to lower demand in the Americas and the International business, triggered by the coronavirus pandemonium. The top line, however, exceeded the Zacks Consensus Estimate of $1,827 million.
Organic revenues decreased 9.1% year over year to $1,813 million. Acquisitions contributed $55 million to incremental revenues. Region wise, revenues were down 6% in North America to $1,344 million, due to lower sales of public safety land mobile radio and professional and commercial radio products, partially offset by growth in video security and services. International revenues were down 8% to $650 million due to a decline in professional and commercial radio products.
Net sales from Products and Systems Integration fell 14% year over year to $1,163 million, largely due to a significant decline in demand for professional and commercial radio products across all geographical regions. However, the segment witnessed solid demand for video security solutions from utility firms and government sectors. The segment’s backlog was down $317 million to $2.9 billion, primarily due to large international deployments and lower order trends owing to the virus outbreak.
Net sales from Services and Software totaled $705 million compared with $645 million a year ago, with solid performance across Command Center Software and services. The segment’s backlog decreased $44 million to $7.8 billion, primarily due to revenue recognition for Airwave and ESN (Emergency Services Network), partially offset by multi-year agreements in the Americas and favorable foreign exchange effects.
Other Quarterly Details
GAAP operating earnings decreased to $352 million from $413 million in the prior-year quarter, while non-GAAP operating earnings were down 9% to $463 million. The company ended the quarter with a total backlog of $10.7 billion, down from $11 billion.
Overall GAAP operating margin was 18.9%, down from 20.7% due to lower revenues. Non-GAAP operating margin was 24.8% compared with 25.5% in the year-ago quarter.
Non-GAAP operating earnings for Products and Systems Integration were down 27% to $219 million for the corresponding margin of 18.9%. Non-GAAP operating earnings for Services and Software were $244 million, up 17% year over year, driven by gross margin expansion and higher sales led by strong demand for Command Center Software solutions and continued growth in the services business. This resulted in non-GAAP operating margin of 34.6% for the segment, up from 32.4%.
Cash Flow and Liquidity
Motorola generated $909 million of cash from operating activities during the first nine months of 2020 compared with $1,028 million a year ago. Free cash flow in the first nine months of the year was $758 million. The company repurchased $105 million worth of stock during the third quarter.
As of Sep 30, 2020, the company had $1,007 million of cash and cash equivalents with $5,162 million of long-term debt. Motorola repaid $300 million of its unsecured revolving credit facility during the quarter. Notably, the company has no near-term debt maturities in 2020 or 2021 and no pension debt obligations until 2023.
Despite the lack of clarity regarding the impact of the coronavirus pandemic on the business, the company offered guidance for the fourth quarter. Fourth-quarter 2020 non-GAAP earnings are expected in the $2.71-$2.76 per share range on a year-over-year revenue decline of 5.5-6%.
For 2020, non-GAAP earnings are expected in the $7.52-$7.58 per share range on a year-over-year revenue decline of 6.5% as the virus outbreak continues to impact its professional commercial radio business and delay engagement and deployments in certain cases, affecting the future revenue trend.
Nevertheless, Motorola is poised to gain from disciplined capital deployment and a strong balance sheet position. The company expects to witness strong demand across land mobile radio products, the video security portfolio, services and software while benefiting from a solid foundation.
Motorola currently has a Zacks Rank #3 (Hold). Some better-ranked stocks in the broader industry are Viavi Solutions Inc. VIAV, Altice USA, Inc. ATUS and Knowles Corporation KN, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Viavi delivered a positive earnings surprise of 17.5%, on average, in the trailing four quarters.
Altice has a VGM Score of A and has gained 5.6% in the past six months.
Knowles has a long-term earnings growth expectation of 10%. It delivered a positive earnings surprise of 12.5%, on average, in the trailing four quarters.
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