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CommScope (COMM) Down 12.3% 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 12.3% 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 the most recent earnings report in order to get a better handle on the important catalysts.

CommScope Beats Q1 Earnings and Revenue Estimates

CommScope reported mixed first-quarter 2019 results wherein both adjusted earnings and revenues surpassed the respective Zacks Consensus Estimate, but decreased year over year.

Net Loss

On a GAAP basis, net loss for the quarter was $2.3 million or loss of 1 cent per share against net income of $33.7 million or 17 cents per share in the year-ago quarter. The deterioration was primarily attributable to lower revenues and higher operating expenses.

Non-GAAP adjusted earnings came in at 48 cents per share compared with 49 cents per share in the prior-year quarter. The bottom line exceeded the Zacks Consensus Estimate of 44 cents.

Revenues

Quarterly net sales decreased 1.9% year over year to $1,099.5 million as growth in the United States was more than offset by decline in sales in the Asia-Pacific region and EMEA (Europe, Middle East and Africa). The top line, however, beat the consensus estimate of $1,076 million. Sales were driven by the build out of 4G networks, partly offset by decline in indoor copper. Also, changes in foreign exchange rates adversely impacted sales by about 2%.

Operating Details

Operating income declined to $90.7 million from $103.7 million in the year-ago quarter owing to reduction in certain selling prices. Non-GAAP adjusted operating income was $190.7 million compared with $188.6 million in the year-ago quarter owing to favorable product and geographic sales mix.

Segmental Performance

Connectivity Solutions revenues were down 4.1% year over year to $646.1 million, primarily due to softness in demand in Asia Pacific and EMEA regions, partly offset by a slight increase in North America. Non-GAAP adjusted operating income decreased 12.1% to $95.5 million owing to reduction in certain selling prices and the impact of unfavorable foreign exchange rates on costs.

Revenues from Mobility Solutions came in at $453.4 million, up 1.5% year over year, amid strong demand in North America. Non-GAAP adjusted operating income increased 19.1% to $95.2 million, benefiting from higher sales volumes and favorable geographic mix.

Cash Flow and Liquidity

During the first quarter, CommScope utilized $10 million of cash from operations against cash generation of $35.2 million in the year-ago quarter. As of Mar 31, 2019, the wireless and broadband network technology company had $176.4 million in cash and equivalents with $7,459.6 million of long-term debt.

Guidance

For second-quarter 2019, CommScope expects revenues between $2.490 billion and $2.650 billion. Operating loss of $124-$170 million and non-GAAP adjusted EBITDA of $365-$405 million is expected. It estimates loss per share of $1.21-$1.44, based on 196 million shares and non-GAAP adjusted EPS of 54-62 cents.

Going Forward

CommScope is optimizing its excellent customer relationships and market position as communication service providers continue to build out their networks to increase capacity and coverage. Moreover, the company has acquired ARRIS on Apr 4, 2019 and is presently working to combine ARRIS and Ruckus for long-term growth. CommScope is poised to benefit from favorable networking market trends, while securing shareholder value.

How Have Estimates Been Moving Since Then?

Fresh estimates followed a downward path over the past two months. The consensus estimate has shifted -20.87% due to these changes.

VGM Scores

At this time, CommScope has a poor Growth Score of F, however its Momentum Score is doing a lot better with a B. Following the exact same course, 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 C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

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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