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ARRIS International (ARRS) Down 5.1% Since Earnings Report: Can It Rebound?

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It has been about a month since the last earnings report for ARRIS International plc (ARRS - Free Report) . Shares have lost about 5.1% in that time frame.

Will the recent negative trend continue leading up to its next earnings release, or is ARRS due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

ARRIS Beats Q1 Earnings Estimate, Misses on Revenues

ARRIS reported relatively healthy first-quarter 2018 results with year-over-year increase in revenues and adjusted earnings driven by diligent execution of operational plans. GAAP net loss for the quarter was $13.6 million or loss of 7 cents per share compared with loss of $39.1 million or loss of 21 cents per share in the year-earlier quarter. The bottom-line improvement was primarily led by strong performance in the Network & Cloud and Enterprise segments. Adjusted earnings for the reported quarter were 73 cents per share compared with 40 cents in the year-ago quarter, comfortably exceeding the Zacks Consensus Estimate by 19 cents.

Revenues improved 6% year over year to $1,577.7 million as international sales increased 30% to achieve a new record for the quarter. The company continued to build on the strong momentum of new design wins across multiple product lines to expand sales with a broad range of international customers. However, GAAP revenues fell short of the Zacks Consensus Estimate of $1,614 million.

Quarter Details

Adjusted gross profit was $501.6 million compared with $343.8 million in the prior-year quarter for respective margins of 31.7% and 23.1%. The improvement in margins was largely due to a favorable product mix and strong performance from high-margin Network & Cloud and Enterprise segments. Total order backlog at the end of the quarter was $1,293 million compared with $1,304 million in the year-ago period. Additionally, book-to-bill ratio was 1.11 compared with 1.13 in the year-earlier quarter.

By segments, revenues from Network & Cloud increased 25% year over year to $538.3 million owing to strong demand of DOCSIS 3.1 capacity on E6000 platform by service providers to expand their networks to meet the growing need for bandwidth. Revenues from Customer Premises Equipments decreased 17% year over year to $875.2 million as video set-top sales were impacted by Pay TV market challenges. Enterprise revenues were $169.9 million driven by growing demand for GigaBit connectivity, cloud and managed service expansion.

Balance Sheet & Cash Flow

For the first three months of 2018, cash from operating activities aggregated $95.9 million compared with $250.1 million in the year-ago quarter. At quarter end, cash and cash equivalents were $506.2 million, while long-term debt & financing lease obligations (net of current portion) were $2,095.3 million. The company bought back 1.9 million shares for $50 million in the quarter under discussion.

ARRIS bought back approximately 986,000 shares for $25 million during the quarter.

Guidance

For the second quarter of 2018, ARRIS expects revenues in the range of $1,760-$1,810 million with adjusted earnings of 72-77 cents per share. The company, however, reiterated its earlier guidance for 2018 and continues to expect revenues between $7,100 million and $7,350 million with adjusted earnings between $2.80 and $3.05 per share.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. There has been one revision higher for the current quarter compared to two lower.

ARRIS International plc Price and Consensus

VGM Scores

At this time, ARRS has a strong Growth Score of A, though it is lagging a bit on the momentum front with a B. Charting a somewhat similar path, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.

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

Based on our scores, the stock is more suitable for value and growth investors than momentum investors.

Outlook

Estimates have been broadly trending downward for the stock and the magnitude of these revisions has been net zero. Interestingly, ARRS has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.




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