Before the opening bell, Motorola Solutions Inc. (MSI) reported mixed financial results for the second quarter of 2012, with the bottom line missing the Zacks Consensus Estimate but the top line surpassing the same.
Following the earning release, the company raised its cash dividend by 18% to 26 cents per share and increased the existing share repurchase authorization by $2 billion to $5 billion, thereby boosting shareholders’ value. Further, the company also lifted its guidance for full fiscal 2012.
Second-Quarter Results in Details
Quarterly GAAP net income from continuing operation was $177 million or 60 cents per share compared with $50 million or 14 cents per share in the prior-year quarter.
Adjusted EPS of 60 cents in the quarter was slightly below the Zacks Consensus Estimate of 62 cents. Quarterly total revenue of $2,148 million was up 8.3% year over year, and also above the Zacks Consensus Estimate of $2,107 million. The growth in revenue was mainly fueled by higher global demand across the Government segments.
Quarterly gross margin was 49.3% compared with 50.1% in the prior-year quarter. Operating income in the reported quarter was $278 million, up 74.8% year over year. Quarterly operating margin was 12.9% versus 8% in the prior-year quarter. During the second quarter of 2012, Motorola Solutions repurchased shares worth $1,804 million.
During the quarter, Motorola Solutions generated $254 million in cash from operations compared with $94 million in the year-ago quarter. Quarterly free cash flow was $202 million compared with $61 million in the prior-year quarter.
At the end of second quarter 2012, Motorola Solutions had $3,705 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 $1,861 million compared with $1,130 million at the end of fiscal 2011. Debt-to-capitalization ratio at the end of the reported quarter was 0.33 compared with 0.18 at the end of fiscal 2011.
Government Segment
Quarterly total revenue was $1,459 million, up 14% year over year. Operating income came in at $197 million, up 88% year over year.
Enterprise Segment
Quarterly total revenue was $689 million, down 2% year over year. Operating income stood at $81 million, up 50% year over year.
Performance by Category
Quarterly product revenue was $1,563 million, up 7.6% year over year. Services revenue was $585 million, up 10.2% year over year. Quarterly product gross margin was 54.4% compared with 55.6% in the year-ago quarter. Services gross margin was 35.7% compared with 37.5% in the year-ago quarter.
Future Financial Outlook
Motorola Solutions expects third-quarter 2012 revenue to grow approximately 3% year over year. EPS from continuing operation is expected in the range of 69 cents to 74 cents. For fiscal 2012, revenue is expected to grow 5% to 6% year over year and operating income is estimated to be 17% of the total revenue.
Recommendation
Huge market share for public safety products and a massive $6 billion of order backlog coupled with an increase in the share repurchase authorization will certainly boost the top and bottom line of Motorola Solutions.
However, the company is heavily dependent on government expenditures for its revenue. Approximately 65% of total sales of Motorola Solutions are from government agencies.
So 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) has planned to gradually phase-out of iDEN network 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 #3 Rank, implying a short-term Hold rating on the stock.
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