MSI Motorola Solutions Inc

Motorola Solutions Inc. (MSI) reported excellent financial results for the fourth quarter of 2011 with both its top line and bottom line exceeding the Zacks Consensus Estimates.  The solid performance was mainly driven by solid demand across both Government and Enterprise segments.

Fourth-Quarter Results in Details

Quarterly GAAP net income from continuing operation was $184 million or 54 cents per share compared with $292 million or 49 cents per share in the prior-year quarter. However, adjusted (excluding special items) EPS in the fourth quarter of 2011 was 78 cents, surpassing the Zacks Consensus Estimate of 74 cents. Quarterly total revenue was $2,300 million, up 5% year over year, marginally beating the Zacks Consensus Estimate of $2,286 million.

Quarterly gross margin was 50.4% compared with 49.8% in the prior-year quarter. Operating income in the reported quarter was $276 million, up 1.5% year over year. Quarterly operating margin came in at 12% versus 12.4% in the prior-year quarter. During the fourth quarter, Motorola Solutions used $366 million to repurchase its common shares.   

During the fourth quarter of 2011, Motorola Solutions generated $44 million (including $250 million payment toward the U.S. Pension Fund) in cash from operations compared with $333 million in the year-ago quarter. Quarterly free cash flow was a negative $39 million compared with $252 million in the prior-year quarter.

At the end of fiscal 2011, Motorola Solutions had $5,091 million in cash, cash equivalents and marketable securities compared with $8,933 million at the end of fiscal 2010. Total debt at the end of fiscal 2011 was $1,535 million compared with $2,703 million at the end of fiscal 2010. Debt-to-capitalization ratio at the end of fiscal 2011was 0.18 compared with 0.16 at the end of fiscal 2010.

Government Segment

Quarterly total revenue was $1,547 million, up 6% year over year. Operating income came in at $226 million, up 25% year over year.

EnterpriseSegment

Quarterly total revenue was $753 million, up 3% year over year. Operating income stood at $50 million, down 45% year over year.

Performance by Category

Quarterly Product revenue was $1,689 million, up 3.9% year over year. Services revenue was $611 million, up 9.3% year over year. Quarterly Product gross margin was 54.2% compared with 54.3% in the year-ago quarter. Services gross margin was 40.1% compared with 36.9% in the year-ago quarter.

Future Financial Outlook

Motorola Solutions expects first-quarter 2012 revenue to grow by approximately 4% year over year. EPS from continuing operation is expected to be in the range of 50 cents to 55 cents. For fiscal 2012, revenue is expected to grow 5% year over year and operating income is estimated to be 17% of total revenue.  

Recommendation

Motorola Solutions is the largest developer of the public safety products commanding nearly half of the total U.S market. The company entered into an agreement with Verizon Wireless to install a standard-based public safety broadband network for mission-critical operations leveraging on the nationwide LTE network of the carrier. Verizon Wireless is a joint venture between Verizon Communications Inc. (VZ) and Vodafone Group plc. (VOD). 

We, thus, maintain our long-term Neutral recommendation onMotorola SolutionsInc. Currently,Motorola Solutions Inc.has a Zacks #4 Rank, implying a short-term Sell rating on the stock. This was primarily due to its current valuation, which soared over 29% in the last year.

 
MOTOROLA SOLUTN (MSI): Free Stock Analysis Report
 
VODAFONE GP PLC (VOD): Free Stock Analysis Report
 
VERIZON COMM (VZ): Free Stock Analysis Report
 
To read this article on Zacks.com click here.
 
Zacks Investment Research