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CommScope (COMM) Q2 Earnings and Revenues Beat Estimates

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CommScope Holding Company, Inc. (COMM - Free Report) reported healthy results in the second quarter of 2018, wherein both the top line and bottom line beat the respective Zacks Consensus Estimate.

Net Income

On a GAAP basis, quarterly net income was $65.9 million or 34 cents per share compared with $55.5 million or 28 cents per share in the year-ago quarter, primarily driven by higher North American sales volumes and cost-reduction initiatives.

Non-GAAP adjusted income came in at $133.1 million or 68 cents per share compared with $118.6 million or 60 cents per share in the year-ago quarter, beating the Zacks Consensus Estimate by 3 cents.

CommScope Holding Company, Inc. Price, Consensus and EPS Surprise

Revenues

Quarterly total net sales increased 5.6% year over year to $1,239.9 million, driven by growth in the United States, Europe, Middle East and Africa (EMEA), and Latin America. The figure surpassed the Zacks Consensus Estimate of $1,226 million. Revenue strength was led by strong service provider spending as operators densify, virtualize and optimize their networks.

Operating Metrics

Operating income was $164.7 million compared with $136.4 million in the year-ago quarter, benefiting from lower integration and restructuring costs. Non-GAAP adjusted operating margin was 20.3% compared with 20.5% in the year-ago quarter. Non-GAAP adjusted EBITDA (earnings before interest, tax, depreciation and amortization) increased to $271.1 million from $261.3 million in the year-ago quarter.

Segmental Performance

Connectivity Solutions revenues grew 2% year over year to $740.5 million primarily driven by strength in the EMEA region. Operating income increased 15.2% to $85.4 million largely due to lower integration and restructuring costs. Non-GAAP adjusted operating income decreased 1.9% to $142.9 million primarily due to higher input costs, lower selling prices and the impact of unfavorable foreign exchange rate changes.

Revenues from Mobility Solutions improved 11.4% year over year to $499.4 million driven by double-digit growth in North America coupled with less pronounced increases in Latin America and EMEA. Operating income increased 27.3% to $79.3 million. Non-GAAP adjusted operating income increased 13.4% to $108.2 million, benefiting from higher North American sales volumes.

Cash Flow & Balance Sheet

For the first six months of 2018, CommScope generated $135.1 million of cash from operations compared with $190 million in the previous-year period. As of Jun 30, 2018, the company had $545.7 million of cash and cash equivalents with long-term debt of 4,374.2 million.  

CommScope repaid $400 million of its term loan on Jul 31, 2018 by utilizing $250 million of available cash and $150 million from its asset-backed revolving credit facility.

Guidance

For the third quarter, CommScope expects revenues between $1.19 billion and $1.24 billion, up 8% year over year at the midpoint. GAAP operating income of $145-$169 million and non-GAAP adjusted operating income of $225-$250 million is expected. It anticipates GAAP EPS of 41-45 cents, while non-GAAP adjusted EPS are likely to be within 63 cents and 68 cents.

For full-year 2018, the company reiterated its earlier guidance. It continues to expect revenues between $4.68 billion and $4.83 billion, GAAP operating income of $540-$585 million and non-GAAP adjusted operating income of $870 million-$920 million. It anticipates GAAP EPS of $1.18-$1.30, and non-GAAP adjusted EPS of $2.33-$2.48. Cash flow from operations is expected to be more than $550 million.

Zacks Rank & Stocks to Consider

CommScope currently has a Zacks Rank #3 (Hold). Better-ranked stocks in the broader industry include Comtech Telecommunications Corp. (CMTL - Free Report) , Micron Technology, Inc. (MU - Free Report) and Motorola Solutions, Inc. (MSI - Free Report) . While Comtech and Micron sport a Zacks Rank #1 (Strong Buy), Motorola carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Comtech has a long-term earnings growth expectation of 5%. It beat earnings estimates in each of the trailing four quarters, the average being 123.7%.          

Micron has a long-term earnings growth expectation of 8.2%. It beat earnings estimates in each of the trailing four quarters, the average being 5.9%.   

Motorola has a long-term earnings growth expectation of 8.5%. It beat earnings estimates in each of the trailing four quarters, the average being 12.1%.   

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