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Motorola (MSI) Q2 Earnings Beat on Record Revenues, View Up

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Motorola Solutions, Inc. (MSI - Free Report) reported strong second-quarter 2021 results, driven by diligent execution of operational plans and healthy growth dynamics backed by solid order trends. Adjusted earnings and revenues surpassed the respective Zacks Consensus Estimate and improved significantly year over year.

Net Earnings

On a GAAP basis, net earnings in the reported quarter were $293 million or $1.69 per share compared with $135 million or 78 cents 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 $2.07 per share compared with $1.39 in the year-ago quarter. The bottom line beat the Zacks Consensus Estimate by 15 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 record high at $1,971 million, up 21.8% year over year due to increased demand across the globe driven by strength of its business model and value of its mission-critical integrated ecosystem. The company witnessed double digit growth in both the segments with strong demand for video security, command center software and LMR (land mobile radio) services. Demand for professional and commercial radio (PCR) also witnessed a pick up. The top line exceeded the consensus estimate of $1,942 million.

Organic revenues increased 18.9% year over year to $1,921 million. Acquisitions contributed $47 million to incremental revenues. Region wise, revenues were up 20% in North America to $1,312 million due to growth in LMR, video security and command center software. International revenues improved 25.5% to $659 million due to higher sales of LMR and video security products.

Segmental Performance

Net sales from Products and Systems Integration increased 23.8% year over year to $1,198 million, largely due to a higher demand for LMR and video security solutions from utility firms and government sectors. The segment’s backlog was up $484 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 $773 million with solid performance across command center software and services along with growth in LMR services. The segment’s backlog increased $257 million to $7.9 billion, primarily due to multi-year software and service agreements in the Americas.

Other Quarterly Details

GAAP operating earnings increased to $370 million from $218 million in the prior-year quarter, while non-GAAP operating earnings were up 34.3% to $482 million. The company ended the quarter with a backlog of $11.2 billion, up $741 million year over year.

Overall GAAP operating margin was 18.8%, up from 13.5% due to higher revenues. Non-GAAP operating margin was 24.4% compared with 22.2% in the year-ago quarter.

Non-GAAP operating earnings for Products and Systems Integration were up 48.1% to $194 million for a corresponding margin of 16.2%. Non-GAAP operating earnings for Services and Software were $288 million, up 26.3% 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 37.2% for the segment, up from 35.1%.

Cash Flow and Liquidity

Motorola generated $388 million of cash from operating activities in the reported quarter compared with $209 million a year ago, bringing the respective tallies for the first six months of 2021 and 2020 to $758 million and $517 million. Free cash flow in the quarter was $326 million. The company repurchased $102 million worth of stock during the second quarter. Subsequent to the quarter end, the company acquired Openpath Security Inc. for $297 million. Openpath’s capabilities are likely to enable Motorola to augment its footprint and support enterprise customers with state-of-the-art security solutions.  

As of Jun 30, 2021, the company had $1,921 million of cash and cash equivalents with $5,686 million of long-term debt. During the quarter, Motorola issued $850 million of new long-term debt and redeemed $324 million of outstanding senior notes due in 2023.

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 $8.88-$8.98 per share range, up from prior expectations of $8.70-$8.80 per share on year-over-year revenue improvement of 9.5-10% (up from earlier projections of 8-9% growth) with rise in both the segments on higher demand.

The company has also offered guidance for the third quarter of 2021. Quarterly non-GAAP earnings are expected in the range of $2.09-$2.14 per share on year-over-year revenue growth of approximately 10%.

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 industry are Clearfield, Inc. (CLFD - Free Report) , sporting a Zacks Rank #1 (Strong Buy), and Juniper Networks, Inc. (JNPR - Free Report) and Qualcomm Incorporated (QCOM - Free Report) , both carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Clearfield delivered a trailing four-quarter earnings surprise of 49%, on average.

Juniper has a long-term earnings growth expectation of 11.8%. It delivered an earnings surprise of 7.5%, on average, in the trailing four quarters.

Qualcomm has a long-term earnings growth expectation of 21%. It delivered an earnings surprise of 13.5%, on average, in the trailing four quarters.