It has been about a month since the last earnings report for Motorola (MSI Quick QuoteMSI - Free Report) . Shares have added about 14.5% 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 Beats on Q1 Earnings, Withdraws 2020 Guidance

Despite coronavirus-induced adversities, Motorola reported solid first-quarter 2020 results, driven by diligent execution of operational plans. The company witnessed a healthy demand for video security products and services during the quarter and remains well poised to tide over the storm with a solid cash flow and balance sheet position. 

Net Earnings

On a GAAP basis, net earnings in the reported quarter were $197 million or $1.12 per share compared with $151 million or 86 cents in the year-earlier quarter. The improvement was primarily attributable to lower cost of products sold and other income.

Non-GAAP earnings in the quarter were $1.49 per share compared with $1.28 in the year-ago quarter. The bottom line beat the Zacks Consensus Estimate by 24 cents.

Revenues

Quarterly net sales remained flat year over year at $1,655 million as growth in the Americas was offset by a decline in the international business. The top line exceeded the Zacks Consensus Estimate of $1,633 million.

Organic revenues decreased 3% year over year to $1,604 million. Acquisitions contributed $48 million to incremental revenues, while currency headwinds were $7 million in the quarter. Region-wise, revenues improved 4% in North America to $1,116 million, driven by growth in video security, Command Center Software and services. International revenues were down 7% to $539 million due to a decline in professional and commercial radio products.

Segmental Performance

Net sales from Products and Systems Integration fell 7% year over year to $993 million, largely due to a significant decline in demand for professional and commercial radio products across all geographical regions. However, the segment witnessed solid demand for video security solutions from utility firms and government sectors. The segment’s backlog was down $72 million to $2.9 billion, primarily due to unfavorable foreign currency translation and a decline in the international backlog.

Net sales from Services and Software totaled $662 million compared with $588 million a year ago, with growth in all regions and solid performance across Command Center Software and services. The segment’s backlog increased $120 million to $7.5 billion, primarily due to multi-year agreements in the Americas.

Other Quarter Details

GAAP operating earnings increased to $259 million from $229 million in the prior-year quarter, while non-GAAP operating earnings were up 10% to $347 million. The company ended the quarter with a total backlog of $10.4 billion, flat year over year.

Overall GAAP operating margin was 15.6%, up 180 basis points, primarily owing to lower cost of sales. Non-GAAP operating margin was 21% compared with 19% in the year-ago quarter.

Non-GAAP operating earnings for Products and Systems Integration were down 16% to $123 million for the corresponding margin of 12.4%. Non-GAAP operating earnings for Services and Software were $224 million, up 33% year over year, driven by gross margin expansion and higher sales led by strong demand for Command Center Software solutions and continued growth in the services business. This resulted in non-GAAP operating margin of 33.8% for the segment, up from 28.6%.

Cash Flow and Liquidity

Motorola generated $308 million of cash from operating activities during the quarter compared with $251 million a year ago. Free cash flow in the first quarter was $260 million. The company repurchased $253 million worth of stock during the quarter.

As of Mar 31, 2020, the company had $1,672 million of cash and cash equivalents with $5,111 million of long-term debt. Due to the uncertainty triggered by the virus outbreak, Motorola drew $800 million from its unsecured revolving credit facility during the quarter. The company has $1.4 billion available for debt under this credit facility. Notably, Motorola has no near-term debt maturities in 2020 or 2021 and no pension debt obligations until 2023.

2020 Guidance Withdrawn

Despite the lack of clarity regarding the impact of the coronavirus pandemic on the business, the company offered guidance for the second quarter. Second-quarter 2020 non-GAAP earnings are expected in the $1.18-$1.27 per share range on a year-over-year revenue decline of 14-17%.

However, management withdrew the guidance for 2020 as the virus outbreak impacted its professional commercial radio business, and delayed engagement and deployments in certain cases, likely affecting the future revenue trend.

Moving Forward

Nevertheless, Motorola is poised to gain from disciplined capital deployment and a strong balance sheet position. The company expects to record strong demand across land mobile radio products, the video security portfolio, services and software while benefiting from a solid foundation.

How Have Estimates Been Moving Since Then?

Fresh estimates followed a downward path over the past two months. The consensus estimate has shifted -35.29% due to these changes.

VGM Scores

At this time, Motorola has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with a C. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 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

Motorola has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.