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Better 3Q for Motorola Solutions

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Before the opening bell, Motorola Solutions Inc. (MSI - Free Report) reported impressive financial results for the third quarter of 2012, with both top and bottom lines surpassing the Zacks Consensus Estimate.  

Third-Quarter Results in Details

Quarterly GAAP net income from continuing operation was $206 million or 72 cents per share compared with $128 million or 45 cents per share in the prior-year quarter.

Adjusted EPS of 84 cents in the quarter was much higher than the Zacks Consensus Estimate of 61 cents. Quarterly total revenue of $2,153 million was up 3% year over year, and also above the Zacks Consensus Estimate of $2,146 million. The growth in revenue was mainly fueled by higher global demand across the Government segments.

Quarterly gross margin was 50.5% compared with 50.6% in the prior-year quarter. Operating income in the reported quarter was $324 million, up 28% year over year. Quarterly operating margin was 15% versus 12.2% in the prior-year quarter. During the second quarter of 2012, Motorola Solutions repurchased shares worth $308 million.   

During the quarter, Motorola Solutions generated $182 million in cash from operations compared with $477 million in the year-ago quarter. Quarterly free cash flow (operating cash flow less capital expenditure) was $143 million compared with $434 million in the prior-year quarter.

At the end of third quarter 2012, Motorola Solutions had $3,539 million in cash, cash equivalents and marketable securities compared with $5,091 million at the end of fiscal 2011. Total debt at the end of the quarter was $1,860 million compared with $1,130 million at the end of fiscal 2011. Debt-to-capitalization ratio at the end of the reported quarter was 0.32 compared with 0.18 at the end of fiscal 2011.

Government Segment

Quarterly total revenue was $1,521 million, up 12% year over year. Operating income came in at $273 million, up by a significant 47% year over year.


Quarterly total revenue was $632 million, down 13% year over year. Operating income stood at $51 million, down 25% year over year.

Performance by Category

Quarterly product revenue was $1,567 million, up 1% year over year. Services revenue was $586 million, up 9.9% year over year. Quarterly product gross margin was 56.5% compared with 56.3% in the year-ago quarter. Services gross margin was 34.5% compared with 34.1% in the year-ago quarter.

Future Financial Outlook

Motorola Solutions expects fourth-quarter 2012 revenue to grow between 6% to 7% year over year. EPS from continuing operation is expected in the range of 98 cents to $1.03. For fiscal 2012, revenue is expected to grow 6% to 6.5% year over year (inclusive of recently acquired Psion revenue).  


We believe that huge market share for public safety products, recent acquisition and continuous order wins will consistently drive both top and bottom line of the company going forward.

However, the company is heavily dependent on government expenditures for its revenue. Approximately 65% of total sales of Motorola Solutions are from government agencies. Therefore, we believe that a slowdown in the government expenditures owing to budgetary pressures may significantly jeopardize the company’s overall financials.

Moreover, Sprint Nextel Corp. (S - Free Report) has planned to gradually phase-out of iDEN network, which may act as a major setback for the company going forward. Thus, we maintain our long-term Neutral recommendation on Motorola Solutions Inc.

Currently, Motorola Solutions Inc. has a Zacks #2 Rank, implying a short-term Buy rating on the stock. 

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