A month has gone by since the last earnings report for CommScope (COMM). Shares have lost about 0.3% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is CommScope due for a breakout? Before we dive into how investors and analysts have reacted as of late, let’s take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
CommScope Tops Q1 Earnings Estimates, Withdraws View
CommScope reported decent first-quarter 2020 results, with the bottom and the top line beating the respective Zacks Consensus Estimate.
On a GAAP basis, net loss in the March quarter was $173.7 million or a loss of 89 cents per share compared with a net loss of $2.3 million or loss of 1 cent per share in the year-ago quarter. The deterioration was due to an operating loss and higher interest expense.
However, first-quarter adjusted net income came in at $27.2 million or 12 cents per share compared with $93 million or 48 cents per share in the prior-year quarter. The bottom line beat the Zacks Consensus Estimate by 4 cents.
Quarterly net sales increased 84.9% year over year to $2,033.2 million on contribution of $1.03 billion from the ARRIS acquisition. The top line surpassed the consensus estimate of $1,976 million.
On a combined-company basis, net sales declined 18% year over year. CommScope estimates that first-quarter 2020 net sales were negatively impacted by about $70 million related to supply chain disruptions stemming from COVID-19.
Net sales in Broadband were down 20% year over year to $613.4 million due to declines in Network Cable and Connectivity and Network & Cloud. The segment’s operating loss was $18.6 million against an operating income of $57.3 million in the prior-year quarter.
Net sales in Home totaled $601.4 million, down 27% year over year due to declines in In-Home Video, partially offset by growth in Broadband Connectivity Devices. Operating income fell 66.8% to $11.9 million.
Net sales in Outdoor Wireless came in at $348.9 million, down 10.7% year over year on a combined-company basis due to declines in Macro Tower Solutions. Despite lower spending from T-Mobile (TMUS), year-over-year net sales remained flat in North America. This was more than offset by declines in macro tower spending outside the United States, in Latin America, Asia Pacific and Middle East regions. Operating income was $65 million, down 8.3%.
Net sales in Venue and Campus were $469.5 million, down 5.9% year over year due to declines in indoor copper. Growth in North America was more than offset by international declines. Operating income was $37.7 million, up 86.6%. This business continues to benefit from a strong backlog pipeline of stadium and large venue network build-outs.
Overall, gross profit totaled $641.2 million compared with $398 million in the year-ago quarter. Total operating expenses increased to $673 million from $307.3 million. Operating loss was $31.8 million against an operating income of $90.7 million in the prior-year quarter. Adjusted EBITDA was $231.2 million compared with $294.3 million in the year-earlier quarter, down 21.4%.
Cash Flow & Liquidity
In the first quarter, CommScope utilized $42.7 million of net cash in operating activities compared with a cash utilization of $10 million in first-quarter 2019.
As of Mar 31, the wireless and broadband network technology company had $394.3 million in cash and equivalents with $9,698.7 million of long-term debt compared with the respective tallies of $598.2 million and $9,800.4 million at the end of the prior quarter. The company reduced debt by more than $600 million since the acquisition of ARRIS.
Due to uncertainties related to COVID-19, CommScope has withdrawn its outlook for 2020. However, the company expects second-quarter sales and adjusted EBITDA to improve modestly from first-quarter 2020 levels.
How Have Estimates Been Moving Since Then?
Fresh estimates followed a downward path over the past two months. The consensus estimate has shifted -10.96% due to these changes.
Currently, CommScope has a subpar Growth Score of D, though it is lagging a bit on the Momentum Score front with an F. However, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.