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Motorola (MSI) Q1 Earnings Beat on Record Revenues, View Up

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Motorola Solutions, Inc. MSI reported strong first-quarter 2021 results, driven by diligent execution of operational plans and healthy growth dynamics backed by solid order trends. Despite coronavirus-induced adversities, both adjusted earnings and revenues surpassed the respective Zacks Consensus Estimate and improved year over year.

Net Earnings

On a GAAP basis, net earnings in the reported quarter were $244 million or $1.41 per share compared with $197 million or $1.12 in the year-earlier quarter. The improvement was primarily attributable to top-line growth.

Excluding non-recurring items, non-GAAP earnings in the quarter were $1.87 per share compared with $1.49 in the year-ago quarter. Also, the bottom line beat the Zacks Consensus Estimate by 25 cents.

Motorola Solutions, Inc. Price, Consensus and EPS Surprise

Motorola Solutions, Inc. Price, Consensus and EPS Surprise
Motorola Solutions, Inc. Price, Consensus and EPS Surprise

Motorola Solutions, Inc. price-consensus-eps-surprise-chart | Motorola Solutions, Inc. Quote

Revenues

Quarterly net sales were record high at $1,773 million, up 7.1% year over year to due to higher demand in the Americas and the International business on early signs of post-pandemic revival. The company witnessed double digit growth in video security, command center software and LMR (land mobile radio) services, while demand for professional and commercial radio (PCR) also picked up. Further, the top line exceeded the consensus estimate of $1,750 million.

Organic revenues increased 4.2% year over year to $1,724 million. Acquisitions contributed $48 million to incremental revenues. Region wise, revenues were up 6.2% in North America to $1,185 million due to growth in LMR, video security and command center software. International revenues improved 9.1% to $588 million due to higher sales of LMR and video security products.

Segmental Performance

Net sales from Products and Systems Integration increased 2.2% year over year to $1,015 million, largely due to a higher demand for PCR and video security solutions from utility firms and government sectors. The segment’s backlog was up $318 million to $3.3 billion, primarily due to high LMR demand in North America and International markets.

Net sales from Services and Software were up 14.5% to $758 million with solid performance across command center software and services along with growth in LMR services. The segment’s backlog increased $548 million to $8 billion, primarily due to multi-year software and service agreements in the Americas.

Other Quarterly Details

GAAP operating earnings increased to $298 million from $259 million in the prior-year quarter, while non-GAAP operating earnings were up 18.4% to $411 million. The company ended the quarter with a backlog of $11.3 billion, up $866 million year over year.

Overall GAAP operating margin was 16.8%, up from 15.6% due to higher revenues. Non-GAAP operating margin was 23.2% compared with 21% in the year-ago quarter.

Non-GAAP operating earnings for Products and Systems Integration were up 6.5% to $131 million for a corresponding margin of 12.9%. Non-GAAP operating earnings for Services and Software were $280 million, up 25% 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 36.9% for the segment, up from 33.8%.

Cash Flow and Liquidity

Motorola generated $370 million of cash from operating activities in the first three months of 2021 compared with $308 million a year ago. Free cash flow in the quarter was $318 million. The company repurchased $170 million worth of stock during the first quarter and had $479 million worth of shares available for repurchase under its previously authorized $14 billion share buyback program. Subsequent to the quarter end, management further increased this share repurchase program by an additional $2 billion.

As of Mar 31, 2021, the company had $1,320 million of cash and cash equivalents with $5,164 million of long-term debt. Motorola entered into a new five-year $2.25 billion revolving credit facility during the quarter, replacing the prior $2.2 billion credit facility.

Guidance Up

With solid quarterly results and robust demand patterns, the company raised its earlier guidance for 2021. Currently, non-GAAP earnings are expected in the $8.70-$8.80 per share range, up from prior expectations of $8.50-$8.62 per share on year-over-year revenue improvement of 8-9% (up from earlier projections of 7.3-8% growth) with rise in both the segments as pent up demand picks up pace.

The company has also offered guidance for the second quarter of 2021. Quarterly non-GAAP earnings are expected in the range of $1.90-$1.95 per share on year-over-year revenue growth of 19-20%.

Moving Forward

Motorola is poised to gain from disciplined capital deployment and a strong balance sheet position. The company expects to witness strong demand across LMR 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 Corning Incorporated GLW, Clearfield, Inc. CLFD and Nokia Corporation NOK, each carrying a Zacks Rank #2 (Buy). 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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