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ARRIS (ARRS) Misses Earnings and Revenue Estimates in Q2

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ARRIS International plc (ARRS - Free Report) reported decent second-quarter 2018 financial results with year-over-year increase in revenues and adjusted earnings, although it missed the respective estimates.

Net Income

GAAP net income for the reported quarter came in at $35.8 million or 19 cents per share compared with $30.3 million or 16 cents per share in the year-earlier quarter. The bottom line improvement was primarily led by strong performance in the Network & Cloud and Enterprise businesses.

Adjusted earnings for the quarter improved to 72 cents per share from 63 cents in the year-ago quarter. However, the figure missed the Zacks Consensus Estimate by 3 cents.

ARRIS International plc Price, Consensus and EPS Surprise

Revenues

Quarterly GAAP revenues increased 4% year over year to $1,726.5 million with the addition of Ruckus and increased E6000 CCAP sales. The figure, however, lagged the Zacks Consensus Estimate of $1,772 million.

Quarter Details    

Total operating expenses increased to $453.9 million from $347.7 million in the prior-year quarter. Adjusted gross profit was $505.9 million compared with $409.5 million in the prior-year quarter for respective margins of 29.2% and 24.6%. 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 reported quarter was $1,258 million compared with $1,326 million in the year-ago period. Additionally, book-to-bill ratio was 0.98 compared with 1.01 in the year-earlier quarter.

By segments, revenues from Network & Cloud were $549.5 million reflecting strong demand for HFC Access equipment — E6000 Gen2 hardware and Video Systems products.

Revenues from Customer Premises Equipment were $1,008.1 million with video set-top sales impacted by Pay TV market challenges.

Enterprise revenues were $172.2 million, driven by growing demand for GigaBit connectivity, cloud and managed service expansion.

Cash Flow & Balance Sheet

For the first six months of 2018, the company generated $199.3 million of cash from operations compared with $495.9 million in the year-ago period.

As of Jun 30, 2018, ARRIS had cash and cash equivalents of $501.4 million with long-term debt & financing lease obligations (net of current portion) of $2,074.4 million compared with respective tallies of $1,346 million and $2,134.5 million a year ago.

The company repurchased approximately 4 million ordinary shares for $100 million during the reported quarter.

Guidance

For the third quarter of 2018, ARRIS expects revenues in the range of $1,680-$1,730 million with GAAP EPS of 20-25 cents and adjusted EPS of 65-70 cents.

For 2018, the company expects revenues between $6,850 million and $7,000 million with GAAP EPS of 68-83 cents and adjusted EPS of $2.85-$3.

Zacks Rank & Stocks to Consider

ARRIS currently has a Zacks Rank #3 (Hold). Better-ranked stocks in the industry include Arista Networks, Inc. (ANET - Free Report) , Corning Incorporated (GLW - Free Report) and SeaChange International, Inc. (SEAC - Free Report) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Arista has a long-term earnings growth expectation of 21.2%. It beat earnings estimates in each the trailing four quarters, the average being 25.5%.          

Corning has a long-term earnings growth expectation of 8.2%. It beat earnings estimates in each the trailing four quarters, the average being 3.8%.          

SeaChange has a long-term earnings growth expectation of 10%. It surpassed earnings estimates thrice in the trailing four quarters with an average positive surprise of 282.8%.          

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