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Motorola (MSI) Q3 Earnings Beat on Holistic Growth, View Up

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Motorola Solutions, Inc. (MSI - Free Report) reported solid third-quarter 2019 results with year-over-year increase in revenues and earnings, driven by strength in both segments and diligent execution of operational plans. The company is well poised to sustain its momentum throughout the year with healthy demand across its portfolio and record order backlog.  

Net Earnings

On GAAP basis, net earnings were $267 million or $1.51 per share compared with $247 million or $1.43 per share in the year-earlier quarter. The year-over-year rise was primarily attributable to top-line growth.

Non-GAAP earnings were $2.04 per share compared with $1.94 in the year-ago quarter. The bottom line beat the Zacks Consensus Estimate by 8 cents.

Motorola Solutions, Inc. Price, Consensus and EPS Surprise


Motorola Solutions, Inc. Price, Consensus and EPS Surprise

Motorola Solutions, Inc. price-consensus-eps-surprise-chart | Motorola Solutions, Inc. Quote


Quarterly net sales were $1,994 million compared with $1,862 million in the year-ago quarter, driven by growth in both the segments and solid performance in the Americas. The top line exceeded the Zacks Consensus Estimate of $1,992 million.

Organic growth for the quarter was 4%, and acquisitions contributed $58 million to incremental revenues. Region wise, revenues improved 12% in the Americas to $1.5 billion driven by broad base growth across all platforms. This was partially offset by 1% and 9% decline in EMEA (Europe, Middle East and Africa) and Asia Pacific to $384 million and $158 million, respectively, owing to adverse foreign currency translation.

Segmental Performance

Net sales from Products and Systems Integration were $1,349 million compared with $1,288 million in the prior-year quarter, largely due to growth in the Americas. The segment’s backlog was down $39 million primarily due to two large system deployments in the Middle East and Africa.

Net sales from Services and Software totaled $645 million compared with $574 million a year ago, with growth in the Americas and EMEA. The segment’s backlog increased $1.6 billion year over year, primarily due to growth in the Americas and EMEA due to the ESN and Airwave extensions.

Other Quarter Details

GAAP operating earnings increased to $413 million from $294 million in the prior-year quarter, while non-GAAP operating earnings were $509 million, up 13%. The company ended the quarter with total backlog of $11 billion, up $1.6 billion.

Overall GAAP operating margin jumped to 20.7% from 15.8% in the prior-year quarter, primarily due to higher revenues. Non-GAAP operating margin was 25.5% compared with 24.3% in the year-ago quarter.

Non-GAAP operating earnings for Products and Systems Integration were $300 million, up 9% year over year. Non-GAAP operating margin for the segment was 22.2%, up from 21.4% due to higher sales.

Non-GAAP operating earnings for Services and Software were $209 million, up 19% year over year driven by gross margin expansion and higher sales, resulting in non-GAAP operating margin of 32.4%, up from 30.7%.

Cash Flow and Liquidity

Motorola generated $525 million of cash from operating activities during the quarter compared with $338 million a year ago, bringing the respective tallies for the first nine months of 2019 and  the first three quarters of 2018 to $1,028 million and $263 million. Free cash flow for the third quarter was $465 million.

As of Sep 28, 2019, the company had $1,138 million of cash and cash equivalents with $5,112 million of long-term debt.

Outlook Raised

Owing to solid quarterly performance, management raised guidance for 2019. Full-year non-GAAP earnings are currently anticipated to lie within the $7.77-$7.82 per share range, up from $7.67-$7.77 expected earlier on revenue growth of 7.25-7.5%, up from prior expectations of 7-7.5% rise.

Fourth-quarter 2019 non-GAAP earnings are expected to be in the $2.75-$2.80 per share range on revenue growth of 5-5.5%.

Moving Forward

Motorola is 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 while benefiting from a solid foundation. Furthermore, Motorola’s competitive position and attractive portfolio for large addressable markets and healthy balance sheet augur well for future growth.

We remain impressed with the healthy prospects of this Zacks Rank #2 (Buy) stock. Some other top-ranked stocks in the broader industry are Altice USA Inc. (ATUS - Free Report) , Communications Systems, Inc. (JCS - Free Report) and Harmonic Inc. (HLIT - Free Report) , each carrying a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank(Strong Buy)stocks here.

Altice delivered average positive earnings surprise of 158.5% in the trailing four quarters, beating estimates on each occasion.

Communications Systems delivered average positive earnings surprise of 600% in the trailing four quarters.

Harmonic has a long-term earnings growth expectation of 8.8%. It delivered average positive earnings surprise of 48.3% in the trailing four quarters, beating estimates on each occasion.

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