Motorola (NYSE: MSI) Earnings Report Could Park a Spike

Motorola Solutions, Inc. MSI reported strong third-quarter 2023 results, driven by the diligent execution of operational plans and healthy growth dynamics backed by solid order trends. Both adjusted earnings and revenues surpassed the respective Zacks Consensus Estimate. In addition, Motorola achieved record third-quarter revenues, earnings, cash flow and backlog, which further exemplified the strength of its portfolio. The company expects this growth momentum to continue in the near term on robust demand patterns.

Net Earnings
On a GAAP basis, net earnings in the third quarter were $464 million or $2.70 per share compared with $279 million or $1.63 per share in the year-earlier quarter. The year-over-year improvement was primarily attributable to top-line growth and lower cost of sales.

Excluding non-recurring items, non-GAAP earnings in the quarter were $547 million or $3.19 per share compared with $514 million or $3.00 per share in the year-ago quarter. The bottom line beat the Zacks Consensus Estimate by 17 cents.

Revenues
Quarterly net sales were record high at $2,556 million, up 7.7% year over year, with solid sales in both segments across all regions driven by the strength of its business model and the value of its mission-critical integrated ecosystem. The company witnessed strong demand for video security, command center software and LMR (land mobile radio) services. The top line beat the consensus estimate of $2,516 million.

Region-wise, quarterly revenues were up 5.7% in North America to $1,783 million due to growth in LMR, command center software and video security products. International revenues were up 12.7% to $773 million, with growth in video security products, LMR and command center software. Acquisitions contributed $19 million to revenues, while foreign exchange tailwinds were $13 million.

Segmental Performance
Net sales from Products and Systems Integration increased to $1,612 million from $1,529 million in the year-ago quarter, driven by higher demand for LMR and video security solutions. It also exceeded our revenue estimates of $1,552 million. The segment’s backlog was up $62 million to $4.9 billion, primarily due to high LMR demand in North America.

Net sales from Software and Services were up 11.8% to $944 million, with solid performance across command center software, LMR and video security services. However, the segment revenues missed our estimates of $962.8 million. The segment’s backlog increased $702 million to $9.4 billion, primarily due to higher multi-year software and services contracts in North America and favorable currency impact, partially offset by revenue recognition for the Airwave contract.

Other Quarterly Details
GAAP operating earnings increased to $639 million from $373 million in the prior-year quarter, while non-GAAP operating earnings were up to $741 million from $676 million. The company ended the quarter with a record backlog of $14.3 billion, up $764 million year over year.

Overall GAAP operating margin was 25%, up from 15.7%, while non-GAAP operating margin was 29% compared with 28.5% in the year-ago quarter. The increase in GAAP operating margin was primarily due to higher sales.

Cash Flow and Liquidity
Motorola generated $714 million cash from operating activities in the reported quarter compared with an operating cash flow of $388 million a year ago. Free cash flow in the third quarter was $649 million. The company repurchased $322 million worth of stock during the third quarter. As of Sep 30, 2023, MSI had $910 million of cash and cash equivalents with $4,704 million of long-term debt.

Guidance Up
With solid quarterly results and robust demand patterns, the company raised its earlier guidance for 2023. Non-GAAP earnings for 2023 are currently expected in the $11.65-$11.70 per share range, up from $11.40-$11.48 on revenues of $9.930 billion to $9.945 billion, up from $9.875 billion to $9.900 billion estimated earlier, with a rise in both segments on higher demand.

For fourth-quarter 2023, non-GAAP earnings are expected in the $3.60-$3.65 per share range on year-over-year revenue improvement of approximately 4% due to healthy demand trends.

Moving Forward
Motorola is poised to gain from disciplined capital deployment and a strong balance sheet position. The company expects strong demand across LMR products, the video security portfolio, services and software while benefiting from a solid foundation.

Price Momentum
MSI is trading near the top of its 52-week range and above its 200-day simple moving average. Investors have been pushing the share price higher, and the stock still appears to have upward momentum. This is a positive sign for the stock's future value.