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Why Is Motorola (MSI) Down 1.8% Since Last Earnings Report?

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It has been about a month since the last earnings report for Motorola (MSI - Free Report) . Shares have lost about 1.8% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Motorola 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.

Motorola Beats on Q4 Earnings Despite Soft Revenues

Motorola reported relatively modest fourth-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.

Net Earnings

On a GAAP basis, net earnings in the reported quarter were $412 million or $2.37 per share compared with $244 million or $1.39 in the year-earlier quarter. The improvement, despite top-line contraction, was primarily due to higher non-cash charges in fourth-quarter 2019.

Excluding non-recurring items, non-GAAP earnings in the quarter were $2.86 per share compared with $2.94 in the year-ago quarter. The bottom line beat the Zacks Consensus Estimate by 12 cents.

In full-year 2020, GAAP earnings improved to $949 million or $5.45 per share from $868 million or $4.95 in 2019, while non-GAAP earnings per share declined to $7.69 from $7.96 in 2019 largely due to lower sales.

Revenues

Quarterly net sales fell 4.4% year over year to $2,273 million due to lower demand in the Americas and the International business owing to the continued downturn in business led by the virus outbreak. The top line, however, exceeded the Zacks Consensus Estimate of $2,239 million.

Organic revenues decreased 6.9% year over year to $2,213 million. Acquisitions contributed $60 million to incremental revenues. Region wise, revenues were down 3.6% in North America to $1,548 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 6.1% to $725 million due to a decline in professional and commercial radio as well as public safety land mobile radio products.

Segmental Performance

Net sales from Products and Systems Integration fell 9.7% year over year to $1,510 million, largely due to a significant decline in demand for professional and commercial radio products across all regions. However, the segment witnessed solid demand for video security solutions from utility firms and government sectors. The segment’s backlog was down $38 million to $3.1 billion, primarily due to lower order trends owing to the virus outbreak.

Net sales from Services and Software were up to $763 million from $704 million a year ago, with solid performance across Command Center Software and services along with growth in land mobile radio services. The segment’s backlog increased $213 million to $8.3 billion, primarily due to multi-year agreements in the Americas and favorable foreign exchange effects, partially offset by revenue recognition for Airwave and ESN (Emergency Services Network).

Other Quarterly Details

GAAP operating earnings decreased to $555 million from $590 million in the prior-year quarter, while non-GAAP operating earnings were down 5.6% to $667 million. The company ended the quarter with a record backlog of $11.4 billion, up $175 million year over year. Overall GAAP operating margin was 24.4%, down from 24.8% due to lower revenues. Non-GAAP operating margin was 29.3% compared with 29.7% in the year-ago quarter.

Non-GAAP operating earnings for Products and Systems Integration were down 16% to $408 million for the corresponding margin of 27%. Non-GAAP operating earnings for Services and Software were $259 million, up 16% 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 33.9% for the segment, up from 31.7%.

Cash Flow and Liquidity

Motorola generated $1,613 million of cash from operating activities in 2020 compared with $1,823 million a year ago. Free cash flow for the year was $1,396 million. The company repurchased $171 million worth of stock during the fourth quarter. As of Dec 31, 2020, the company had $1,254 million of cash and cash equivalents with $5,163 million of long-term debt compared with respective tallies of $1,001 million and $5,113 million a year ago. Motorola repaid $200 million of its unsecured revolving credit facility during the quarter.

Guidance

Despite the lack of clarity regarding the impact of the coronavirus pandemic on the business, the company offered guidance for the first quarter of 2021. Quarterly non-GAAP earnings are expected in the range of $1.58-$1.64 per share on year-over-year revenue growth of 5.5-6%.

For 2021, non-GAAP earnings are expected in the $8.50-$8.62 per share range on year-over-year revenue improvement of 7.3-8% with growth in both the segments as pent up demand picks up pace.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended upward during the past month.

VGM Scores

Currently, Motorola has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. However, 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

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Motorola has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.


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