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CommScope (COMM) Q3 Earnings Surpass Estimates, Shares Up

Zacks Equity Research

CommScope Holding Company, Inc. COMM reported solid third-quarter 2019 results with healthy year-over-year increase in revenues and non-GAAP earnings. Results reflected the underlying strength of its resilient business model and diligent execution of operational plans despite a challenging macroeconomic environment and near-term industry headwinds. Post earnings release, shares were up 27.2% to close at $14.94 yesterday.

Bottom Line

On a GAAP basis, net loss for the September quarter was $170.3 million or loss of 88 cents per share against net income of $63.8 million or 33 cents per share in the year-ago quarter. The sharp deterioration was mainly due to substantial operating loss incurred in the quarter and higher interest expenses.

However, non-GAAP net income came in at $126.9 million or 55 cents per share compared with $114.5 million or 59 cents per share in the prior-year quarter. The bottom line beat the Zacks Consensus Estimate by 10 cents.

CommScope Holding Company, Inc. Price, Consensus and EPS Surprise

 

CommScope Holding Company, Inc. Price, Consensus and EPS Surprise

CommScope Holding Company, Inc. price-consensus-eps-surprise-chart | CommScope Holding Company, Inc. Quote

Revenues

Quarterly net sales surged 106.9% year over year to $2,380.2 million, primarily driven by incremental contribution of $1.34 billion from ARRIS and strong performance across all regions. The top line, however, lagged the consensus estimate of $2,428 million.

On a pro forma basis, net sales declined 15% year over year with lower sales in all segments. The decrease was mainly due to lower sales to cable operator customers, pricing pressures and negative impact of about 1% from foreign exchange rate changes.

Segment Results

Net pro forma sales from Connectivity Solutions were down 13.3% year over year to $634.5 million due to lower sales volume and adverse foreign currency translation. GAAP operating income declined 41.9% to $55.1 million owing to lower sales volume.

Net pro forma sales from Mobility Solutions totaled $405.9 million, down 3.1% year over year, led by the pending merger of T-Mobile US, Inc. TMUS and Sprint Corporation S. Healthy demand, particularly in North America and EMEA (Europe, Middle East and Africa) more than offset decline in the Asia-Pacific region. GAAP operating loss of $2 million (down from operating income of $37.3 million in the year-ago quarter) was due to the settlement of patent infringement litigation.

Net pro forma sales from Customer Premise Equipment came in at $826.4 million, down 12.2% year over year due to lower cable operator spending. While net pro forma sales from Network and Cloud were $376.9 million (down 29.2%), the same from Ruckus equaled $136.5 million (down 23.2%).

Other Details

For the third quarter, gross profit was $609.9 million compared with $409.7 million in the prior-year quarter. Total GAAP operating expenses surged to $660.7 million from $277.5 million, leading to operating loss of $50.8 million against operating income of $132.2 million in the prior-year quarter. Non-GAAP adjusted EBITDA was $369.8 million compared with $237.8 million in the year-earlier quarter.

Cash Flow & Liquidity

During the first nine months of 2019, CommScope generated $260.4 million of net cash from operations compared with $361.9 million in the year-ago period. As of Sep 30, 2019, the wireless and broadband network technology company had $609.1 million in cash and cash equivalents with $10,101.2 million of long-term debt.

Q4 Outlook

For the fourth quarter, CommScope expects revenues between $2.2 billion and $2.4 billion. Non-GAAP adjusted EBITDA is anticipated to be within $275-$335 million. It estimates loss per share of 45-42 cents, while non-GAAP earnings is expected to be in the range of 27-37 cents per share.

Zacks Rank & Stock to Consider

CommScope currently has a Zacks Rank #3 (Hold).

A better-ranked stock in the broader industry is ATN International, Inc. ATNI, carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks Rank #1 (Strong Buy) stocks here.

ATN International delivered an average positive earnings surprise of 143.9% in the trailing four quarters.

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