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Motorola (MSI) Trumps Q2 Earnings Estimates, Raises Guidance

Zacks Equity Research

Motorola Solutions, Inc. MSI 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.

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


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.

Segmental Performance

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 Quarter 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 and 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%.

Moving Forward

Motorola is poised to gain from robust organic growth, disciplined capital deployment and a favorable global macroeconomic environment. The company expects to record strong demand across land mobile radio products, services and software while benefiting from a solid foundation. Furthermore, Motorola’s competitive position and attractive portfolio for large addressable markets and healthy balance sheet augur well for future growth.

We remain impressed with the healthy prospects of this Zacks Rank #3 (Hold) stock. Some better-ranked stocks in the industry are Comtech Telecommunications Corp. CMTL, sporting a Zacks Rank #1 (Strong Buy), and Cogent Communications Holdings, Inc. CCOI and Nokia Corporation NOK, carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Comtech has a long-term earnings growth expectation of 5%. It delivered average positive earnings surprise of 216.7% in the trailing four quarters, beating estimates on each occasion.

Cogent Communications has a long-term earnings growth expectation of 8%.

Nokia delivered average positive earnings surprise of 89.3% in the trailing four quarters, beating estimates thrice.

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