Motorola Solutions Misses Q2 Earnings and Revenue Estimates

Motorola Solutions Inc. MSI reported disappointing financial results for the second quarter of 2014, wherein both its top and bottom line significantly missed the respective Zacks Consensus Estimate. On Apr 15, 2014, Motorola Solutions entered into an agreement with Zebra Technologies Corp. ZBRA to sell its Enterprise Business for $3.5 billion in cash. The deal is expected to close by the end of 2014. 

Quarterly GAAP net income from continuing operations came in at $78 million or 30 cents per share compared with $227 million or 81 cents per share in the prior-year quarter. Adjusted earnings per share of 40 cents were well below the Zacks Consensus Estimate of 52 cents per share.

Quarterly total revenue was $1,393 million, down 7% year over year and also missed the Zacks Consensus Estimate of $1,959 million. Reduction in sales was primarily due to poor demand in North America, Asia Pacific and the Middle East, partially offset by an increase in demand in Europe, Africa and Latin America.

Quarterly gross margin stood at 47.1% against 50.1% in the prior-year quarter. Operating income, in the reported quarter, was $138 million, down 32% year over year. Quarterly operating margin was 9.9% compared with 13.6% in the prior-year quarter. In the reported quarter, Motorola Solutions repurchased shares worth $416 million.

On Jul 31, 2014, Motorola Solutions announced an increase in its quarterly cash dividend by 10% to 34 cents per share. The next quarterly dividend will be payable in cash on Oct 15, 2014, to stockholders of record at the close of business as on Sep. 15, 2014.

Motorola Solutions generated $118 million in cash from operations in second-quarter 2014 compared with a negative $22 million in the year-ago quarter. Quarterly free cash flow was $76 million as against a negative $59 million in the year-ago quarter.

At the end of the second quarter of 2014, Motorola Solutions had $2,876 million in cash and cash equivalents compared with $3,225 million at the end of 2013. Total debt, at the end of the reported quarter, stood at $2,450 million as against $2,457 million at the end of 2013. The debt-to-capitalization ratio at the end of second-quarter 2014 was 0.37 compared with 0.48 at the end of 2013.

Segment Wise Results

Quarterly Product revenues totaled $887 million, down 10% year over year. Services revenues were $506 million, down 1% year over year. Quarterly Product operating margin was 10.7% compared with 12.7% in the year-ago quarter. Services operating margin was 8.5% as against 15.3% in the comparable year-ago quarter.

Financial Outlook

Motorola Solutions expects revenues for third quarter of fiscal 2014 to drop 7% - 9% year over year while non-GAAP earnings per share from continuing operations are likely to be in the range of 35 cents to 41 cents.

For full-fiscal 2014, Motorola Solutions expects revenues to decline by low-to-mid single digits year over year while non-GAAP operating margin from continuing operations is estimated to be around 18.5%.

Other Stocks to Consider

Motorola Solutions currently has a Zacks Rank #3 (Hold). Other better-ranked stocks worth considering in the wireless equipment sector include DragonWave Inc. DRWI and Ericsson ERIC. Both these stocks currently carry a Zacks Rank #2 (Buy).