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Motorola (MSI) Q3 Earnings Beat on Higher Revenues, View Up

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Motorola Solutions, Inc. (MSI - Free Report) reported strong third-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 $307 million or $1.76 per share compared with $205 million or $1.18 per share 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 $2.35 per share compared with $1.95 in the year-ago quarter. The bottom line beat the Zacks Consensus Estimate by 22 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

Revenues

Quarterly net sales were $2,107 million, up 12.8% year over year due to increased demand across the globe driven by the strength of its business model and the value of its mission-critical integrated ecosystem. The company witnessed double-digit growth in both 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 pickup. The top line exceeded the consensus estimate of $2,060 million.

Organic revenues increased 12.2% year over year to $2,064 million. Acquisitions contributed $43 million to incremental revenues. Region-wise, revenues were up 14.3% in North America to $1,449 million due to growth in LMR, video security, and command center software. International revenues improved 9.7% to $658 million due to higher sales of LMR and video security products.

Segmental Performance

Net sales from Products and Systems Integration increased 13.9% year over year to $1,325 million, largely due to higher demand for LMR and video security solutions from utility firms and government sectors. The segment’s backlog was up $704 million to $3.6 billion, primarily due to high LMR demand in North America and the International markets.

Net sales from Services and Software were up 10.9% to $782 million with solid performance across command center software and services along with growth in LMR services. The segment’s backlog increased $6 million to $7.8 billion, primarily due to multi-year software and service agreements in the Americas, partially offset by revenue recognition on Airwave and ESN.

Other Quarterly Details

GAAP operating earnings increased to $451 million from $352 million in the prior-year quarter while non-GAAP operating earnings were up 19.9% to $555 million. The company ended the quarter with a record backlog of $11.4 billion, up 7% year over year.

Overall GAAP operating margin was 21.4%, up from 18.9% due to higher revenues. Non-GAAP operating margin was 26.3% compared with 24.8% in the year-ago quarter. The increase in both GAAP and non-GAAP operating margins was driven by higher revenues and improved operating leverage across both segments.

Non-GAAP operating earnings for Products and Systems Integration were up 24.7% to $273 million for a margin of 20.6%. Non-GAAP operating earnings for Services and Software were $282 million, up 15.6% 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 36% for the segment, up from 34.6%.

Cash Flow and Liquidity

Motorola generated $376 million of cash from operating activities in the reported quarter compared with $392 million a year ago, bringing the respective tallies for the first nine months of 2021 and 2020 to $1,134 million and $909 million. Free cash flow in the quarter was $315 million. The company repurchased $137 million worth of stock during the third quarter. During the quarter, Motorola acquired Openpath Security Inc. for $297 million. Openpath’s capabilities are likely to enable the company to augment its footprint and support enterprise customers with state-of-the-art security solutions. As of Sep 30, 2021, the company had $1,653 million of cash and cash equivalents with $5,687 million of long-term debt.

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 $9.00-$9.04 per share range, up from prior expectations of $8.88-$8.98 on year-over-year revenue improvement of 10-10.25% (up from earlier projections of 9.5-10% growth) with a rise in both the segments on higher demand.

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 Aviat Networks, Inc. (AVNW - Free Report) and SeaChange International, Inc. (SEAC - 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 an earnings surprise of 49%, on average, in the trailing four quarters.

Aviat delivered an earnings surprise of 32.1%, on average, in the trailing four quarters.

SeaChange has a long-term earnings growth expectation of 10%. It delivered an earnings surprise of 28.9%, on average, in the trailing four quarters.