Motorola Solutions Q2 Profit Surges Despite Lower Sales, Outlook Disappoints

(RTTNews) - Motorola Solutions, Inc. (MSI) on Tuesday reported a profit for the second quarter that more than tripled from last year as lower sales and margins were more than offset by earnings from discontinued operations. However, the company forecast financial results for the third quarter below analysts' expectations.

Second-quarter net earnings attributable to Schaumburg, Illinois-based Motorola Solutions were $824 million or $3.22 per share, up from $258 million or $0.94 per share in the same period last year. The latest results were benefited by significant earnings from discontinued operations of $746 million or $2.92 per share.

On April 15, Motorola Solutions said it has agreed to sell its Enterprise business to Zebra Technologies Corp. (ZBRA) for $3.45 billion in cash. The Enterprise business is reflected as discontinued operations.

On a continuing operations basis, earnings for the quarter plunged to $78 million or $0.30 per share from last year's $223 million or $0.81 per share.

Adjusted earnings from continuing operations for the latest quarter were $0.47 per share. On average, 15 analysts polled by Thomson Reuters expected earnings of $0.63 per share for the quarter. Analysts' estimates typically exclude special items.

Net sales for the quarter declined 7 percent to $1.39 billion from $1.50 billion in the same period last year. Analysts' revenue estimate was $1.96 billion.

While announcing its financial results for the first quarter in May, Motorola Solutions had forecast second-quarter revenues to decline 5 to 8 percent and also projected adjusted earnings from continuing operations in a range of $0.58 to $0.64 per share.

The decline in sales for the quarter primarily reflected lower sales in North America state and local markets as well as in Asia Pacific & the Middle East. Meanwhile, Europe & Africa and Latin America sales grew double-digits.

Product sales declined 10 percent from last year to $887 million, driven primarily by lower subscriber and systems revenues. Services segment sales declined 1 percent to $506 million.

Gross margin for the quarter narrowed to 47.1 percent from 50.1 percent in the year-ago period. Operating margin also contracted to 9.9 percent from 13.6 percent last year.

Looking ahead to the third quarter, Motorola Solutions forecasts adjusted earnings from continuing operations in a range of $0.35 to $0.41 per share and revenue to decline 7 to 9 percent. Street expects the company to earn $1.02 per share for the quarter on a 0.3 percent increase in revenues to $2.12 billion.

For fiscal 2014, Motorola Solutions now forecasts revenue decline of low- to mid- single digits, excluding IDEN. Earlier, the company forecast revenue decline of low single digits compared with the prior year. Analysts expect the company to report a 3.1 percent decline in revenues to $8.42 billion.

However, the company maintained its full-year outlook for adjusted operating margins from continuing operations of about 18.5 percent of sales.

Motorola Solutions has increased its target for cost reductions from $200 million to about $300 million by the end of 2015. The company noted that this will result in a total reduction in operating expenses from $2 billion in 2013 to about $1.7 billion for 2015.

On July 31, the company announced that it will increase its quarterly cash dividend by 10 percent to 34 cents per share. The next quarterly dividend will be payable in cash on October 15, 2014, to stockholders of record at the close of business on September 15, 2014.

MSI closed Monday's trading at $64.11. In Tuesday's pre-market activity, the stock is currently trading at $61.47, down $2.64 or 4.12 percent on a volume of 2.55 million shares.