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Motorola (MSI) Trumps Q2 Earnings & Sales, Raises Guidance

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Motorola Solutions, Inc. (MSI - Free Report) reported strong second-quarter 2018 results on the back of healthy growth across all geographic regions. GAAP earnings for the reported quarter were $180 million or $1.05 per share compared with $131 million or 78 cents per share in the year-earlier quarter. The year-over-year improvement was primarily attributable to top-line growth. Excluding non-recurring items, non-GAAP earnings for the reported quarter were $1.46 per share compared with $1.12 in the year-ago quarter. The bottom line exceeded the Zacks Consensus Estimate of $1.37.

Motorola Solutions, Inc. Price, Consensus and EPS Surprise

 

Motorola Solutions, Inc. Price, Consensus and EPS Surprise | Motorola Solutions, Inc. Quote

Net sales came in at $1,760 million compared with $1,497 million in the year-ago quarter, driven by organic growth of 6% and healthy performance across all regions. Quarterly sales exceeded the Zacks Consensus Estimate of $1,709 million.

Segmental Details

Motorola reorganized its operating segments during the quarter. The new segments of the company are Products and Systems Integration, and Services and Software. The change reflects moving Systems Integration business from the erstwhile Services segment into the newly formed Products and Systems Integration segment and moving Software from the former Products segment into the new Services and Software segment.

Net sales from Products and Systems Integration were $1,189 million compared with $1,047 million in the prior-year quarter, primarily led by accretive acquisitions and adoption of accounting standard ASC 606. Total segment backlog increased for the 15th consecutive quarter to $3.1 billion (up $367 million or 13% year over year), driven by North America and EMEA.

Aggregate quarterly revenues from Services and Software came in at $571 million compared with $450 million in the year-ago quarter, driven by solid performance across all regions and accretive acquisitions. Total segment backlog at the end of the quarter increased to $6.3 billion (up $552 million or 10% year over year), driven by the Americas and Asia Pacific.

Margins

GAAP operating income for the reported quarter was $273 million compared with $261 million in the prior-year quarter while the respective tallies for non-GAAP operating income were $378 million and $316 million. GAAP operating margin for the quarter declined to 15.5% from 17.4% due to higher transaction costs related to acquisitions, partially offset by adoption of ASC 606 and favorable mix. Non-GAAP operating margin was 21.5% compared with 21.1% in the year-ago quarter owing to top-line growth.

Non-GAAP operating income for Products and Systems Integration was $226 million, up 11% year over year for non-GAAP operating margin of 19%, down 50 basis points (bps) from the last year due to higher acquisition-related costs.

Non-GAAP operating income for Services and Software was $152 million, up 36% year over year for non-GAAP operating margin of 26.6%, up 170 bps owing to higher sales.

Balance Sheet and Cash Flow

Motorola exited the quarter with total cash and cash equivalents of $878 million and long-term debt of $5,298 million. For the first six months of 2018, the company utilized cash of $75 million for operating activities against cash flow of $315 million in the prior-year period, owing to significant pension contribution in the previous quarter.

Outlook Raised

Motorola is poised to gain from robust organic growth, disciplined capital deployment and a favorable global macroeconomic environment. With solid quarterly results and continued strength in order trajectory, management has raised the earlier guidance for 2018. Full-year adjusted earnings are currently anticipated to lie within the $6.79-$6.89 per share range, up from $6.70-$6.85 expected earlier on revenue growth of 14.5%, up from prior expectations of 14% growth. Third-quarter 2018 adjusted earnings are expected to be in the $1.67-$1.72 per share range on revenue growth of 13%.

Zacks Rank & Other Stocks to Consider

Motorola currently carries a Zacks Rank #2 (Buy). Other top-ranked stocks in the industry include Clearfield, Inc. (CLFD - Free Report) and Qualcomm Inc. (QCOM - Free Report) , both carrying a Zacks Rank #2, and Comtech Telecommunications Corp. (CMTL - Free Report) sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Clearfield has a positive earnings surprise history with an average of 52.8% in the trailing four quarters, beating estimates in each.

Qualcomm has long-term earnings growth expectations of 10.9%. It has a positive earnings surprise history with an average of 19.8% in the trailing four quarters, beating estimates in each.

Comtech Telecommunications has long-term earnings growth expectations of 5%. It has a positive earnings surprise history with an average of 123.7% in the trailing four quarters, beating estimates in each.

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