Motorola Solutions (MSI, Financial) operates in two segments – Products and Services – and is a leading communications infrastructure manufacturer and provides mission-critical communication infrastructure, devices, software, and services across the world. The company posted estimate-beating first quarter fiscal 2015 results this month. Let’s recap the numbers and see if the communications infrastructure manufacturer can sustain the momentum going forward.
First quarter results
Motorola posted solid first-quarter results with revenue growth almost flat, though it inched up 3% year over year after corrections for currency fluctuations. Except for Latin America, all other regions grew in sales, with North America registering 6% year over year growth. Order backlog at the end of the quarter grew by 8% for the region. Quarterly Product revenues inched up 1% year-over-year to clock $758 million, whereas Services segment revenues came in at $465 million, representing a decline of 2% versus the year-ago quarter.
As a result, quarterly revenue came in at $1,223 million, easily surpassing the consensus estimates of $1,193 million.
On the back of estimate-beating top-line performance and cost cutting initiatives, earnings came in at $0.38 per share. Analysts were expecting this to be $0.25 per share. This represented 36% year over year growth in EPS.
Motorola exited the first quarter with $3,353 million in cash and cash equivalents versus $3,954 million at end of fiscal 2014 and total debt stood at $3,392 million versus $3,396 million at the end of fiscal 2014.
Product innovation and managed services to drive growth
The company is making progress in growth initiatives of driving system upgrades, software enablement, monetizing product enhancements and new product introductions. During the quarter under review, Motorola introduced a specific customer-driven solution such as the APX8000, a P25 portable radio featuring integrated Wi-Fi and quad band radio all in one device. The new the APX8000 is based on newest platform development approach that will be fully leveraged on future models. This will minimize costs and thus drive growth going forward.
In addition, the new TETRA radio devices have improved ruggedness, coverage, audio and enhanced security features. Also, the new North American P25 infrastructure incorporates WAVE technology. This enables the convergence of LMR and LTE access from any device via an IP connection.
These innovations and product portfolio enhancements is already getting good customer response.
Motorola’s managed services business bagged several notable wins, including $62 million for a multiyear managed services contract that was a part of the South Australia Government Radio Network deal. In addition, the company also bagged multiyear managed services deals worth $9 million in Brazil and $8 million in Iraq.
Shopping for growth
Motorola acquired Emergency CallWorks and PublicEngines to bolster its Smart Public Safety Solutions business. Both the companies are leading providers of software-based solutions that bolsters the offerings in command and control, and next generation 9-1-1 call centers and intelligence-led policing solutions.
“The acquisition of PublicEngines reinforces Motorola Solutions’ commitment to helping our customers implement intelligence-led strategies that deter crime and improve outcomes,” said Bob Schassler, executive vice president, Solutions and Services, Motorola Solutions.
Key wins in the Smart Public Safety Solutions business includes a $6 million command and control contract with a country in Africa, $3 million to expand the city of Chicago's video surveillance system, and several CAD and next-generation 9-1-1 wins.
Future ahead
Motorola Solutions expects a 3% to 5% year-over-year decline in second-quarter revenues and earnings are expected to be in the range of $0.51–$0.56 per share. For fiscal 2015, revenues are expected to remain flat or decline by 2% year over year, and earnings from continuing operations are expected to be between $3.20 and $3.40 per share.
The company continues to award shareholders. During the quarter the company bought back shares $653 million of stock and paid $75 million of dividends. Over the last two quarters Motorola has paid over $2 billion to shareholders.
However, with a trailing P/E of 11.3 and forward P/E of 15.14, things don’t seem attractive. Sales have been declining and it is expected to be so in fiscal 2015. Analysts have pegged growth for next 5 years to be at CAGR of a mere 2.0%.
Hence, I would advise staying away from this stock.
