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CommScope (COMM) Down 11.9% Since Last Earnings Report: Can It Rebound?

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A month has gone by since the last earnings report for CommScope (COMM - Free Report) . Shares have lost about 11.9% 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 catalysts.

CommScope Q3 Earnings Surpass Estimates

CommScope reported solid third-quarter 2019 results with healthy year-over-year increase in revenues and non-GAAP earnings. Results reflected the underlying strength of its resilient business model and diligent execution of operational plans despite a challenging macroeconomic environment and near-term industry headwinds.

Net Loss

On a GAAP basis, net loss for the September quarter was $170.3 million or loss of 88 cents per share against net income of $63.8 million or 33 cents per share in the year-ago quarter. The sharp deterioration was mainly due to substantial operating loss incurred in the quarter and higher interest expenses.

However, non-GAAP net income came in at $126.9 million or 55 cents per share compared with $114.5 million or 59 cents per share in the prior-year quarter. The bottom line beat the Zacks Consensus Estimate by 10 cents.

Revenues

Quarterly net sales surged 106.9% year over year to $2,380.2 million, primarily driven by incremental contribution of $1.34 billion from ARRIS and strong performance across all regions. The top line, however, lagged the consensus estimate of $2,428 million.

On a pro forma basis, net sales declined 15% year over year with lower sales in all segments. The decrease was mainly due to lower sales to cable operator customers, pricing pressures and negative impact of about 1% from foreign exchange rate changes.

Segment Results

Net pro forma sales from Connectivity Solutions were down 13.3% year over year to $634.5 million due to lower sales volume and adverse foreign currency translation. GAAP operating income declined 41.9% to $55.1 million owing to lower sales volume.

Net pro forma sales from Mobility Solutions totaled $405.9 million, down 3.1% year over year, led by the pending merger of T-Mobile and Sprint. Healthy demand, particularly in North America and EMEA (Europe, Middle East and Africa) more than offset decline in the Asia-Pacific region. GAAP operating loss of $2 million (down from operating income of $37.3 million in the year-ago quarter) was due to the settlement of patent infringement litigation.

Net pro forma sales from Customer Premise Equipment came in at $826.4 million, down 12.2% year over year due to lower cable operator spending. While net pro forma sales from Network and Cloud were $376.9 million (down 29.2%), the same from Ruckus equaled $136.5 million (down 23.2%).

Other Details

For the third quarter, gross profit was $609.9 million compared with $409.7 million in the prior-year quarter. Total GAAP operating expenses surged to $660.7 million from $277.5 million, leading to operating loss of $50.8 million against operating income of $132.2 million in the prior-year quarter. Non-GAAP adjusted EBITDA was $369.8 million compared with $237.8 million in the year-earlier quarter.

Cash Flow & Liquidity

During the first nine months of 2019, CommScope generated $260.4 million of net cash from operations compared with $361.9 million in the year-ago period. As of Sep 30, 2019, the wireless and broadband network technology company had $609.1 million in cash and cash equivalents with $10,101.2 million of long-term debt.

Q4 Outlook

For the fourth quarter, CommScope expects revenues between $2.2 billion and $2.4 billion. Non-GAAP adjusted EBITDA is anticipated to be within $275-$335 million. It estimates loss per share of 45-42 cents, while non-GAAP earnings is expected to be in the range of 27-37 cents per share.

How Have Estimates Been Moving Since Then?

Fresh estimates followed a downward path over the past two months. The consensus estimate has shifted -45.36% due to these changes.

VGM Scores

Currently, CommScope has an average Growth Score of C, though it is lagging a bit 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.

Outlook

CommScope has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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