Motorola (MSI) Earnings And Revenues Beat Estimates In Q2

Motorola Solutions Inc.’s (NYSE:MSI) second-quarter 2016 earnings per share (including stock-based compensation expense) of $1.03 per share comfortably beat the Zacks Consensus Estimate of 90 cents. Also, earnings improved 66.1% from the year-ago figure, thanks to a significant reduction in costs and increase in sales.

Revenues in the quarter increased 5% from the year-ago quarter to $1,430 million and beat the Zacks Consensus Estimate of $1,395 million. The top line was impacted by foreign currency movements to the tune of $22 million. Operating margin (on an adjusted basis) came in at 22.7% in the quarter, compared with 19% a year ago due to increase in sales and lower operating expenses.

Operating Results

Product segment revenues came in at $801 million in the second quarter, down 8% year over year. Services revenues totaled $629 million, up 26% year over year. The inclusion of products of the recently acquired Airwave Solutions apart from 4% organic growth witnessed in Managed & Support services led to the upside. However, revenues declined 4% in the segment, excluding Airwave Solutions, owing to low systems integration from a large European project.

An increase of $2.2 billion was observed in backlog compared to the prior-year quarter, taking the total to $8.2 billion. Airwave Solutions contributed $1.6 billion to backlog while organic managed and services added another $600 million approximately. From the prior year quarter, products backlog was $64 million.

Motorola generated $292 million of cash from operations in second-quarter 2016 compared with $149 million in the comparable prior year quarter. At the end of the quarter under review, Motorola had $1,545 million in cash and cash equivalents, compared with $1,980 million at the end of 2015. Long-term debt, at the end of the quarter, was $5,028 million compared with $4,345 million at the end of 2015.

Share Repurchase and Dividends

The company returned approximately $555 million to shareholders through buybacks and $72 million in dividends in the second quarter of 2016.

The company has also received approval for a new $2 billion share repurchase program from its board of directors which takes the total authorization to $14 billion from Jul 2011.

Outlook

Motorola expects revenues in the third quarter of 2016 to improve in the range of 6% to 7% on a year-over-year basis. The Airwave Solutions buyout is expected to boost third-quarter revenues by about $130 million. Adjusted earnings per share in the third quarter are projected in the band of $1.17 to $1.22. The Zacks Consensus Estimate of $1.13 is below the guided range.

For 2016, the top line is still projected to grow in the band of 5% to 7% Earnings per share (on an adjusted basis) in 2016 are still expected in the range of $4.45 to $4.65. The Zacks Consensus Estimate of $4.26 lies below the guidance.

Zacks Rank & Key Picks

Motorola currently has a Zacks Rank #3 (Hold). Better-ranked stocks in the same sector include Clearfield, Inc (NASDAQ:CLFD) , QUALCOMM Inc. (NASDAQ:QCOM) and Sonus Networks, Inc (NASDAQ:SONS) . All the companies carry a Zacks Rank #2 (Buy).