Why Is CommScope (COMM) Down 13% Since Last Earnings Report?
A month has gone by since the last earnings report for CommScope (COMM). Shares have lost about 13% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is CommScope due for a breakout? Before we dive into how investors and analysts have reacted as of late, let’s take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
CommScope Q2 Earnings Beat Estimates, Revenues Miss
CommScope reported mixed second-quarter 2019 results, wherein the bottom line surpassed the Zacks Consensus Estimate but the top line missed the same.
On a GAAP basis, net loss for the June quarter was $350.1 million or loss of $1.81 per share against net income of $65.9 million or 34 cents per share in the year-ago quarter. The sharp deterioration was mainly due to substantial operating loss posted in the quarter and higher interest expenses.
However, non-GAAP net income came in at $152.8 million or 66 cents per share compared with $133.1 million or 68 cents per share in the prior-year quarter. The bottom line beat the Zacks Consensus Estimate by 8 cents.
Quarterly net sales increased 107% year over year to $2,566.7 million. The amount included ARRIS sales of $1.37 billion from the date of acquisition, Apr 4, 2019, through the end of the reported quarter. The top line, however, lagged the consensus estimate of $2,588 million.
It should be noted that on a pro forma basis, net sales declined 11.9% year over year with lower results in Connectivity Solutions, Customer Premise Equipment, Network and Cloud, and Ruckus segments, partly offset by growth in Mobility Solutions segment. Markedly, the decrease was mainly due to lower sales to cable operator customers, pricing pressures and negative impact from foreign exchange rate changes of about 1%.
Net sales from Connectivity Solutions were down 9.4% year over year to $670.9 million due to lower sales volume and reduction in certain selling prices. Operating income declined 29.2% to $60.5 million, as a result of higher costs related to the ARRIS transaction and restructuring costs.
Net sales from Mobility Solutions totaled $529.4 million, up 6% year over year, led by higher sales volume. Healthy demand particularly in North America and EMEA (Europe, Middle East and Africa) more than offset decline in the Asia-Pacific region. Operating income increased 24.2% to $98.5 million.
Net sales from Customer Premise Equipment came in at $889.7 million. While net sales from Network and Cloud were $343.9 million, the same from Ruckus equaled $151.1 million.
For the second quarter, gross profit was $660 million compared with $457.2 million in the prior-year quarter. Total operating expenses increased to $869.2 million from $292.5 million. Operating loss was $209.2 million against operating income of $164.7 million in the year-ago quarter. Non-GAAP adjusted EBITDA was $395.6 million compared with $271.1 million in the year-earlier quarter.
Cash Flow & Liquidity
During the first six months of 2019, CommScope utilized $261.6 million of net cash from operations against cash generation of $135.1 million in the year-ago period. As of Jun 30, 2019, the wireless and broadband network technology company had $348 million in cash and equivalents with $10,302.5 million of long-term debt.
For the third quarter, CommScope expects revenues between $2.3 billion and $2.5 billion. Non-GAAP adjusted EBITDA of $310-$370 million is anticipated. It estimates loss per share of 81-85 cents, based on 194 million shares and non-GAAP earnings per share of 37-47 cents, based on 232 million shares.
How Have Estimates Been Moving Since Then?
Estimates revision followed a downward path over the past two months. The consensus estimate has shifted -34.46% due to these changes.
At this time, CommScope has a poor Growth Score of F, however its Momentum Score is doing a lot better with a B. Charting a somewhat similar path, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren’t focused on one strategy, this score is the one you should be interested in.
CommScope has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.
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CommScope Holding Company, Inc. (COMM): Free Stock Analysis Report
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