MSI Lags Earnings, Cuts View - Analyst Blog

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Before the opening bell, Motorola Solutions Inc. ( MSI ) reported weaker results for the first quarter of 2013, with both the top and the bottom lines missing the Zacks Consensus Estimate. The company has also reduced its revenue outlook due to sluggish growth in the Government segment.

Fourth-Quarter Results in Details

Quarterly GAAP net income from continuing operations was $192 million or 68 cents per share compared with $159 million or 50 cents per share in the prior-year quarter.

Adjusted EPS of 55 cents in the quarter was just below the Zacks Consensus Estimate of 56 cents. Quarterly total revenue was $1,973 million, up 1% year over year, but was below the Zacks Consensus Estimate of $2,055 million.

Quarterly gross margin was 48.4% compared with 49.7% in the prior-year quarter. Operating income in the reported quarter was $216 million, down by 6.9% year over year. Quarterly operating margin was 10.9% versus 11.9% in the prior-year quarter. During the first quarter of 2013, Motorola Solutions repurchased shares worth $357 million.

During the quarter, Motorola Solutions generated negative $31 million in cash from operations compared with $69 million in the year-ago quarter. Quarterly free cash flow (operating cash flow less capital expenditure) was negative $77 million compared with a $20 million in the prior-year quarter.

At the end of the first quarter of fiscal 2013, Motorola Solutions had $3,718 million in cash, cash equivalents and marketable securities against $3,603 million at the end of fiscal 2012. Total debt at the end of the quarter was $2,450 million compared with $1,859 million at the end of fiscal 2012. Debt-to-capitalization ratio at the end of the reported quarter was 0.44 compared with 0.36 at the end of fiscal 2012.

Government Segment

Quarterly total revenue was $1,346 million, up 3% year over year. Operating income came in at $180 million, up 20% year over year.

EnterpriseSegment

Quarterly total revenue was $627 million, down 4% year over year. Operating income stood at $36 million, down 56% year over year.

Performance by Category

Quarterly product revenues were $1,381 million, down 4.4% year over year. Services revenues were $592 million, up 15.6% year over year. Quarterly product gross margin was 52.9% compared with 54.4% in the year-ago quarter. Services gross margin was 38% compared with 36.5% in the year-ago quarter.

Future Financial Outlook

Motorola Solutions expects the second quarter of 2013 revenues to remain the same or fall by 2% year over year. EPS from continuing operations is expected in the range of 66 cents to 71 cents.

For fiscal 2013, revenue is expected to grow by 3% to 4% year over year while Non-GAAP operating income is expected to be 18% of the total revenue.  

Other Stocks Set for Earnings Release

Some other companies in the same sector, which are about to release their financial results are Qualcomm Inc. ( QCOM ) and Harris Corporation (HRS).   Qualcomm will report its second-quarter 2013 results on Apr 24 while Harris will release its third-quarter 2013 results on Apr 30.

Recommendation

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

However, the company is heavily dependent on government expenditures for its revenues. Approximately 65% of the 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; hence the company has also slashed its future growth outlook. Moreover, Sprint Nextel Corp . ( S ) has planned to gradually phase out of iDEN network, which may act as a major setback for the company going forward.

Currently,Motorola SolutionsInc.has a Zacks Rank #2 (Buy).



HARRIS CORP (HRS): Free Stock Analysis Report

MOTOROLA SOLUTN (MSI): Free Stock Analysis Report

QUALCOMM INC (QCOM): Free Stock Analysis Report

SPRINT NEXTEL (S): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Business , Earnings , Stocks

Referenced Stocks: HRS , MSI , QCOM , S

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