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Why Is CommScope (COMM) Down 13.5% Since Last Earnings Report?

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A month has gone by since the last earnings report for CommScope (COMM - Free Report) . Shares have lost about 13.5% 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 Q3 Earnings and Revenues Miss Estimates

CommScope reported disappointing results in the third quarter of 2018, wherein both the top line and bottom line missed the respective Zacks Consensus Estimate.

Net Income

On a GAAP basis, quarterly net income was $63.8 million or 33 cents per share compared with $51.2 million or 26 cents per share in the year-ago quarter, primarily driven by higher North America and the Europe, Middle East and Africa (EMEA) regions sales volumes.

Non-GAAP adjusted income came in at $114.5 million or 59 cents per share compared with $107.5 million or 55 cents per share in the year-ago quarter. However, the figure missed the Zacks Consensus Estimate of 66 cents.

Revenues

Quarterly total net sales increased 1.9% year over year to $1,150.4 million, driven by growth in the North America, EMEA regions partially offset by decline in sales in the Asia-Pacific region. Revenue strength was led by strong outdoor Network Solutions growth. However, the figure missed the Zacks Consensus Estimate of $1,223 million.

Operating Metrics

Operating income was $132.2 million compared with $125.4 million in the year-ago quarter, benefiting from higher North American sales volumes and cost reduction initiatives. Non-GAAP adjusted operating margin was 19.0% compared with 19.7% in the year-ago quarter. Non-GAAP adjusted EBITDA (earnings before interest, tax, depreciation and amortization) decreased to $237.8 million from $242.7 million in the year-ago quarter.

Segmental Performance

Connectivity Solutions revenues grew 3% year over year to $732 million primarily driven by strength in the North America and EMEA region. Operating income increased 34.8% to $94.9 million largely due to lower integration and restructuring costs. Non-GAAP adjusted operating income increased 6% to $147 million, driven by higher sales volumes as well as cost savings initiatives.

Revenues from Mobility Solutions came in at $419 million, flat year over year. Revenues were driven by growth in North America coupled with less pronounced increases in EMEA. Operating income decreased 14% to $72 million. Non-GAAP adjusted operating income decreased 33.8% to $71.6 million, on account of lower selling prices.

Cash Flow & Balance Sheet

For the first nine months of 2018, CommScope generated $361.9 million of cash from operations compared with $335.4 million in the previous-year period. As of Sep 30, 2018, the company had $352.4 million of cash and cash equivalents with long-term debt of 3,983.8 million.

Guidance

For the fourth quarter, CommScope expects revenues between $1.02 billion and $1.07 billion. GAAP operating income of $60-$83 million and non-GAAP adjusted operating income of $145-$170 million is expected. It anticipates GAAP loss per share of 12-14 cents, while non-GAAP adjusted EPS are likely to be within 34-39 cents.

For full-year 2018, the company currently expects revenues between $4.53 billion and $4.58 billion. It projects GAAP operating income of $461-$484 million and non-GAAP adjusted operating income of $804-$829 million. It currently anticipates GAAP EPS of 70-72 cents, and non-GAAP adjusted EPS of $2.09-$2.14. Cash flow from operations is expected to be more than $480 million.

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 -37.48% due to these changes.

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.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. It's no surprise CommScope has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.




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