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CommScope (COMM) Down 0.1% Since Last Earnings Report: Can It Rebound?

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It has been about a month since the last earnings report for CommScope (COMM - Free Report) . Shares have lost about 0.1% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is CommScope 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 drivers.

CommScope Q2 Earnings and Revenues Beat Estimates

CommScope 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.

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.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates.

VGM Scores

Currently, CommScope has an average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.

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

Our style scores indicate that the stock is more suitable for value investors than growth investors.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. Notably, CommScope has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.




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