MSI Motorola Solutions Inc

Motorola Solutions Inc. (MSI) reported excellent financial results for the second 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.

Capital Return Program

Today, Motorola Solutions declared its much awaited cash usage and optimal capital structure strategy. The board of directors has authorized the initiation of a regular quarterly dividend of 22 cents (88 cents per annum) per share.

The first dividend will be payable on October 14, 2011, to shareholders of record at the close of business on September 15, 2011. In addition, the board has also authorized a share buyback program of $2 billion through the end of 2012.

Second-Quarter Results in Details

Quarterly GAAP net income from continuing operation was $58 million or 17 cents per share compared with a net income of $3 million or 1 cent per share in the prior-year quarter.

However, adjusted (excluding special items) EPS in the second quarter of 2011 was 49 cents, significantly above the Zacks Consensus Estimate of 44 cents. Quarterly total revenue was $2,055 million, up 6.1% year over year, surpassing the Zacks Consensus Estimate of $2,025 million.

Quarterly gross margin was 50.6% compared with 49.8% in the prior-year quarter. The second-quarter operating income was $170 million, up 5.6% year over year. Quarterly operating margin came in at 8.3%, while remaining same year over year.  

During the second quarter of 2011, Motorola Solutions generated $102 million of cash from operations compared with $103 million in the year-ago quarter. Quarterly free cash flow was $69 million compared with $66 million in the prior-year quarter.

At the end of the second quarter of 2011, Motorola Solutions had $6,655 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 $2,154 million compared with $2,703 million at the end of the previous year. Debt-to-capitalization ratio, at the end of the second quarter of 2011, was 0.19 compared with 0.16 at the end of fiscal 2010.

Government Segment

Quarterly total revenue was $1,308 million, up 4% year over year. Operating income was $111 million, down 5% year over year.

EnterpriseSegment

Quarterly total revenue was $747 million, up 11% year over year. Operating income was $59 million, up 34% year over year.

Performance by Category

Quarterly Product revenue was $1,524 million, up 6% year over year. Services revenue was $531 million, up 6.6% year over year. Quarterly Product gross margin was 55.1% compared with 54.4% in the year-ago quarter. Services gross margin was 37.7% compared with 36.8% in the year-ago quarter

Future Financial Outlook

Motorola Solutions expects its third-quarter 2011 revenue to grow 7%-8% year over year. The expected EPS from continuing operation is within the range of 56 cents to 61 cents. For fiscal 2011, revenue is expected to grow by 5.5%-6% year over year and operating income will be approximately 16.5% of total revenue.  

Recommendation

Motorola Solutions is the largest developer of the public safety products commanding nearly half of the total market in the U.S. The company entered into an agreement with Verizon Wireless (VZ) to install a standard-based public safety broadband network for mission-critical operations leveraging on the nationwide LTE network of Verizon. We maintain our long-term Neutral recommendation on Motorola Solutions. Currently, it holds a short-term Zacks #3 (Hold) Rank on the stock.

 
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