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Motorola (MSI) Up 17.1% Since Last Earnings Report: Can It Continue?

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It has been about a month since the last earnings report for Motorola (MSI - Free Report) . Shares have added about 17.1% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Motorola due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Motorola Q4 Earnings Beat Estimates on Record Revenues

Motorola reported strong fourth-quarter 2018 results with record revenues, earnings per share, operating cash flow and backlog, driven by strength in both segments and diligent execution of operational plans. This marked an excellent end to 2018, which represented another year of healthy demand across its portfolio.

Net Earnings

On GAAP basis, net earnings for the reported quarter were $423 million or $2.44 per share against loss of $575 million or loss of $3.56 per share in the year-earlier quarter. The year-over-year improvement was primarily attributable to top-line growth and lower income taxes.

Non-GAAP earnings per share were $2.63 compared with $2.10 in the year-ago quarter. The bottom line beat the Zacks Consensus Estimate by 14 cents.

For full-year 2018, GAAP earnings were $966 million or $5.62 per share against net loss of $155 million or loss of 95 cents per share in 2017. Non-GAAP earnings for 2018 improved to $7.15 per share from $5.46 in 2017.

Revenues

Quarterly net sales were record high at $2,254 million compared with $1,957 million in the year-ago quarter, primarily driven by growth in both the segments. The top line exceeded the consensus estimate of $2,219 million.

Geographically, revenues improved 16% in the Americas to $1,561 million and 24% in EMEA (Europe, Middle East and Africa) to $491 million, while decreasing 5% in Asia Pacific to $202 million. For full-year 2018, revenues were $7,343 million compared with $6,380 million in 2017.

Segmental Performance

Net sales from Products and Systems Integration segment were were $1,470 million compared with $1,233 million in the prior-year quarter, backed by acquisitions and growth in Americas and EMEA region. The segment’s backlog was down $116 million year over year primarily due to two large system deployments in the Middle East and Africa.

Net sales from Services and Software segment came in at $784 million compared with $724 million a year ago, with growth in every region. The segment’s backlog increased $1.1 billion year over year, primarily due to growth in the Americas and the Airwave contract extension through the end of 2022.

Other Quarter Details

GAAP operating earnings increased to $1,088 million from $970 million in the prior-year quarter, while non-GAAP operating earnings were $650 million – up 15% year over year.

GAAP operating margin declined to 22.9% from 25.7% in the prior-year quarter, primarily due to higher operating expenses related to acquisitions and closure of some supply chain operations in Europe. Non-GAAP operating margin remained flat at 28.8%.

Non-GAAP operating earnings for Products and Systems Integration were $483 million, up 11% year over year. Non-GAAP operating margin for the segment was 28.9%, down from 30.3% in the prior-year quarter due to higher OpEx related to acquisitions.

Non-GAAP operating earnings for Services and Software were $167 million, up 27% year over year driven by organic gross margin expansion for non-GAAP operating margin of 28.6%, up from 25.2%.

Cash Flow and Liquidity

For 2018, Motorola generated $812 million of cash from operating activities compared with $761 million a year ago. Free cash flow for 2018 totaled $878 million compared with $1,119 million in 2017.

As of Dec 31, 2018, the company had $1,246 million of cash and cash equivalents with $5,289 million of long-term debt compared with respective tallies of $1,205 million and $4,419 million in the year-ago period.

Outlook

Owing to solid quarterly revenue and earnings growth, management offered bullish guidance for 2019. Full-year non-GAAP earnings are currently anticipated to lie within the $7.55-$7.70 per share range on revenue growth of 6-7%.

First-quarter 2019 non-GAAP earnings are expected to be in the $1.11-$1.16 per share range on revenue growth of 11%, assuming current foreign exchange rates, approximately 174 million shares and 25% effective tax rate.

Going Forward

Motorola remains poised to gain from robust organic growth, disciplined capital deployment and a favorable global macroeconomic environment. The company expects to record strong demand across land mobile radio products, services and software going forward while benefiting from a solid foundation. Furthermore, Motorola’s competitive position along with attractive portfolio for large addressable markets and healthy balance sheet augur well for future growth.

 

How Have Estimates Been Moving Since Then?

Fresh estimates followed an upward path over the past two months. The consensus estimate has shifted 10.2% due to these changes.

VGM Scores

At this time, Motorola 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 B on the value side, putting it in the top 40% 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

Motorola has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.




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