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Why Is CommScope (COMM) Down 10% Since Last Earnings Report?

Zacks Equity Research
Xilinx (XLNX) delivered earnings and revenue surprises of -2.08% and 0.17%, respectively, for the quarter ended March 2019. Do the numbers hold clues to what lies ahead for the stock?

A month has gone by since the last earnings report for CommScope (COMM). Shares have lost about 10% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is CommScope due for a breakout? 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.

CommScope Q4 Earnings and Revenues Trump Estimates

CommScope reported relatively healthy fourth-quarter 2018 results wherein both adjusted earnings and revenues surpassed the respective Zacks Consensus Estimate.

Net Income

On a GAAP basis, quarterly net loss was $23.3 million or loss of 12 cents per share against net income of $53.6 million or 27 cents per share in the year-ago quarter. The deterioration was primarily attributable to lower revenues.

Non-GAAP adjusted earnings for the quarter came in at 51 cents per share, which exceeded the Zacks Consensus Estimate of 43 cents. For full-year 2018, CommScope reported GAAP earnings of $140.2 million or 72 cents per share compared with $193.8 million or 98 cents per share in 2017.

Revenues

Quarterly total net sales decreased 6% year over year to $1,057.7 million as modest growth in the United States was more than offset by decline in sales in the Asia-Pacific region and EMEA (Europe, Middle East and Africa). However, the figure beat the consensus estimate of $1,052 million. For full-year 2018, revenues improved to $4,568.5 million from $4,560.6 million in 2017.

Operating Metrics

Operating income declined to $49.3 million from $90.3 million in the year-ago quarter due to the adverse impact of the termination of a significant U.S. defined benefit plan, a foreign exchange loss due to the liquidation of a foreign subsidiary and the impairment of an equity investment in a privately-held company. Non-GAAP adjusted operating income was $179.2 million compared with $197.7 million in the year-ago quarter, owing to top-line contraction due to lower sales volumes and selling prices, partially offset by favorable product and geographic sales mix.

Segmental Performance

Connectivity Solutions revenues were down 4% year over year to $667 million primarily due to softness in demand in Asia Pacific and EMEA regions. Non-GAAP adjusted operating income decreased 2% to $123 million owing to lower selling prices and adverse foreign currency translation, partially offset by favorable product and geographic mix.

Revenues from Mobility Solutions came in at $391 million, down 8% year over year due to adverse foreign exchange currency rates and softness in demand in Asia Pacific and EMEA regions. Non-GAAP adjusted operating income decreased 23% to $56 million on account of lower selling prices and sales volume.

Cash Flow & Balance Sheet

In 2018, CommScope generated $494.1 million of cash from operations compared with $586.3 million a year ago. As of Dec 31, 2018, the company had $458.2 million of cash and cash equivalents with long-term debt of $3,985.9 million compared with respective figures of $454 million and $4,369.4 million on Dec 31, 2017.

Guidance

For first-quarter 2019, CommScope expects revenues between $1.06 billion and $1.11 billion. GAAP operating income of $91-$113 million and non-GAAP adjusted operating income of $167-$192 million is expected. It estimates GAAP loss per share of 10-13 cents and non-GAAP adjusted EPS of 41-46 cents.

For full-year 2019, the company currently expects revenues between $4.51 billion and $4.66 billion. It projects GAAP operating income of $516-$563 million and non-GAAP adjusted operating income of $805-$855 million. It currently anticipates GAAP EPS of 92 cents to $1.03, and non-GAAP adjusted EPS of $2.10-$2.25. Cash flow from operations is expected to be more than $500 million.








 

How Have Estimates Been Moving Since Then?

Fresh estimates followed an upward path over the past two months. The consensus estimate has shifted 13.61% due to these changes.

VGM Scores

At this time, CommScope has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. Following the exact same course, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

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

Outlook

CommScope has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.



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