MSI Motorola Solutions Inc

Motorola Solutions Inc. (MSI) reported excellent financial results for the first quarter of 2011. Both top-line and bottom-line easily beat the Zacks Consensus Estimates. Sales increased in all four geographic regions of the company.

Furthermore, on April 21, 2011, Nokia Siemens Network, a 50-50 joint venture between Nokia Corp. (NOK) and Siemens AG (SI), received the Chinese regulatory clearance to acquire wireless network infrastructure assets of Motorola Solutions. This was the last hurdle for this long pending deal.

Quarterly GAAP net income from continuing operation was $359 million or $1.06 per share compared with a net income of $96 million or 29 cents per share. However, adjusted (excluding special items) EPS in the first quarter of 2011 were 46 cents, significantly above the Zacks Consensus Estimate of 27 cents.

Quarterly total revenue was $1,884 million, up 8% year over year, surpassing the Zacks Consensus Estimate of $1826 million.

Quarterly gross margin was 50% compared with 49% in the prior-year quarter. The first-quarter operating income was $170 million, up 41.7% year over year. Quarterly operating margin was 9% compared with 6.9% in the year-ago quarter.  

During the first quarter of 2011, Motorola Solutions generated $231 million of cash from operations compared with $59 million in the year-ago quarter. Free cash flow was $204 million compared with $22 million in the prior-year quarter.

At the end of the first quarter of 2011, Motorola Solutions had $6,248 million of cash, cash equivalents and marketable securities compared with $8,933 million at the end of fiscal 2010. Total debt at the end of the reported quarter was $2,698 million compared with $2,703 million at the end of the previous year. Debt-to-capitalization ratio, at the end of the first quarter of 2011, was 0.25 compared with 0.16 at the end of fiscal 2010.

Government Segment

Quarterly total revenue was $1.2 billion, up 5% year over year. Operating income was $104 million, up 13% year over year.

EnterpriseSegment

Quarterly total revenue was $695 million, up 14% year over year. Operating income was $66 million, up 135.7% year over year.

Performance by Category

Quarterly Product revenue was $1,424 million, up 10.3% year over year. Services revenue was $460 million, up 2.5% year over year. Quarterly Product gross margin was 53.9% compared with 54% in the year-ago quarter. Services gross margin was 37.8% compared with 34.8% in the year-ago quarter

Future Financial Outlook

Motorola Solutions expects its second-quarter 2011 revenue to grow 4%-5% year over year. The expected EPS from continuing operation is within the range of 46 cents to 51 cents. For fiscal 2011, revenue is expected to grow by 4%-4.5% year over year.  

Recommendation

We maintain our long-term Neutral recommendation on Motorola Solutions. Currently, it holds a short-term Zacks #2 (Buy) Rank on the stock. Motorola Solutions commands nearly half of the total public safety market in the U.S. The company is the largest manufacturer of barcode readers and small rugged mobile computers.

The first dividend is expected to be declared in late 2011. We believe these are the primary reasons for its short-term Buy rating.

 
MOTOROLA SOLUTN (MSI): Free Stock Analysis Report
 
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