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Arris Group (ARRS) Up 11.6% Since Last Earnings Report: Can It Continue?

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It has been about a month since the last earnings report for Arris Group (ARRS - Free Report) . Shares have added about 11.6% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Arris Group due for a pullback? 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 Misses Earnings and Revenue Estimates in Q2

ARRIS 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.

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.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -18.7% due to these changes.

VGM Scores

Currently, Arris Group has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. 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 A. 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 these revisions indicates a downward shift. Interestingly, Arris Group has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.




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