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Before the opening bell, Motorola Solutions Inc. (MSI - Analyst Report) reported strong financial results for the fourth quarter of 2012, with the bottom line surpassing the Zacks Consensus Estimate but the top line missing the same.  

Fourth-Quarter Results in Details

Quarterly GAAP net income from continuing operations was $423 million or $1.18 per share compared with $276 million or 54 cents per share in the prior-year quarter.

Adjusted EPS of $1.10 in the quarter was well above the Zacks Consensus Estimate of 92 cents. Quarterly total revenue was $2,441 million, up 6% year over year, but was slightly below the Zacks Consensus Estimate of $2,454 million. The growth in revenue was mainly fueled by higher global demand across the government segments.

Quarterly gross margin was 50.3% compared with 50.4% in the prior-year quarter. Operating income in the reported quarter was $423 million, up by a whopping 53.3% year over year. Quarterly operating margin was 17.3% versus 12% in the prior-year quarter. During the fourth quarter of 2012, Motorola Solutions repurchased shares worth $326 million.

During the quarter, Motorola Solutions generated $564 million in cash from operations compared with $44 million in the year-ago quarter. Quarterly free cash flow (operating cash flow less capital expenditure) was $517 million compared with a negative $39 million in the prior-year quarter.

At the end of the fourth quarter of fiscal 2012, Motorola Solutions had $3,603 million in cash, cash equivalents and marketable securities against $5,091 million at the end of fiscal 2011. Total debt at the end of the quarter was $1,859 million compared with $1,130 million at the end of fiscal 2011. Debt-to-capitalization ratio at the end of the reported quarter was 0.36 compared with 0.18 at the end of fiscal 2011.

Government Segment

Quarterly total revenue was $1,708 million, up 10% year over year. Operating income came in at $346 million, up by a significant 53% year over year.

EnterpriseSegment

Quarterly total revenue was $733 million, down 3% year over year. Operating income stood at $77 million, up 54% year over year.

Performance by Category

Quarterly product revenue was $1,789 million, up 5.9% year over year. Services revenue was $652 million, up 6.7% year over year. Quarterly product gross margin was 55.8% compared with 54.2% in the year-ago quarter. Services gross margin was 35.4% compared with 40.1% in the year-ago quarter.

Future Financial Outlook

Motorola Solutions expects first-quarter 2013 revenue to grow between 4% and 5% year over year. EPS from continuing operations is expected in the range of 62 cents to 67 cents.

For fiscal 2013, revenue is expected to grow 5% to 5.5% year over year while Non-GAAP operating income is expected to be 18% of the total revenue.  

Other Stocks Set for Earnings Release

Some other companies, which are about to release their financial results in the upcoming days are Nokia Corporation (NOK - Analyst Report), which will report its fourth quarter results on Jan 24 while Harris Corporation (HRS - Analyst Report) is set to releaseits second quarter 2013 results on Jan 29.

Recommendation

We believe that huge market share for public safety products, recent acquisition and continuous order wins will consistently drive both the top and bottom lines of the company going forward.

However, the company is heavily dependent on government expenditures for its revenue. Approximately 65% of the total sales of Motorola Solutions are from government agencies.

Therefore, we believe that a slowdown in the government expenditures owing to budgetary pressures may significantly jeopardize the company’s overall financials; hence the company has also slashed its future growth outlook. Moreover, Sprint Nextel Corp. (S - Analyst Report) has planned to gradually phase out of iDEN network, which may act as a major setback for the company going forward.

Currently, Motorola Solutions Inc. has a Zacks Rank #3 (Hold). 

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