ARRIS International (ARRS) Rallies On Q2 Earnings Beat

ARRIS International plc’s (NASDAQ:ARRS) second-quarter 2016 earnings (excluding special items) of 81 cents per share handily beat the Zacks Consensus Estimate of 59 cents. Quarterly earnings also improved significantly from the year-ago quarter.

Including special items, the company reported earnings of 44 cents per share, way above the year-ago comparable figure of 11 cents. Revenues in the second quarter of 2016 came in at $1,730 million, above the Zacks Consensus Estimate of $1697.9 million. The top line expanded 37.3% on a year-over-year basis. Results were boosted by the acquisition of Pace plc. Foreign currency movements boosted results by approximately $10 million. The upbeat performance drove the stock significantly in aftermarket trading on Jul 27.

ARRIS stated that its Customer Premises Equipments (CPE) segment sales accounted for bulk of its top line ($1.17 billion, up 40% year-over-year). The Network & Cloud unit registered sales of $564 million, up 33%. The company stated that three customers accounted for 51% of its quarterly sales.

Quarterly gross margin (on an adjusted basis) at the Suwanee, GA-based company was 27.2% compared with 29.1% in the year-ago quarter. A change in product mix resulted in the decline. Total order backlog, at the end of the quarter under review, was $1.239 billion compared with $651.3 million at the end of the year-ago quarter. Meanwhile, the book-to-bill ratio stood at 0.94, flat year over year.

At the end of the second quarter of 2016, ARRIS’ cash from operations totaled $260.8 million compared with $71.9 million in the prior-year quarter. The company exited the quarter with cash, cash equivalents and short term investments of approximately $892.9 million compared with $879.1 million at the end of 2015. Meanwhile, long-term debt & financing lease obligations (net of current portion) was $2,221.4 million compared with approximately $1,496.3 million at 2015-end.

Third-Quarter Guidance

The company expects earnings per share (on an adjusted basis) in the range of 72 cents to 77 cents for the third quarter of 2016. Revenues are projected in the range of $1,700 million to $1,750 million. The Zacks Consensus Estimate for earnings is pegged at 67 cents per share on revenues of $1,710 million.

Zacks Rank & Key Picks

ARRIS currently carries a Zacks Rank # 4 (Sell). Investors interested in the broader computer and technology sector may also consider Adobe Systems Incorporated (NASDAQ:ADBE) , Qualcomm Inc. (NASDAQ:QCOM) and NVIDIA Corporation (NASDAQ:NVDA) . All 3 stocks sport a Zacks Rank # 1 (Strong Buy).