CommScope (COMM) Q3 Earnings Top Estimates on Solid Revenues

CommScope Holding Company, Inc. COMM reported strong third-quarter 2022 results, wherein the bottom line and the top line beat the respective Zacks Consensus Estimate. With solid order trends, the company expects this growth momentum to continue despite supply chain headwinds, backed by industry tailwinds such as 5G and mobile network densification, indoor coverage and expansion of optical fiber networks.

Bottom Line

On a GAAP basis, the net income in the September quarter was $22.9 million or 4 cents per share against a net loss of $124.2 million or a loss of 68 cents per share in the year-ago quarter. The year-over-year improvement was primarily attributable to top-line growth and lower operating expenses.

Adjusted net income came in at $124.6 million or 50 cents per share compared with $72.3 million or 29 cents per share in the prior-year quarter. The bottom line beat the Zacks Consensus Estimate by a couple of cents.

CommScope Holding Company, Inc. Price, Consensus and EPS Surprise

CommScope Holding Company, Inc. price-consensus-eps-surprise-chart | CommScope Holding Company, Inc. Quote

Top Line

Quarterly net sales improved 13.1% year over year to $2,381.4 million, largely due to higher sales in the Outdoor Wireless Networks, Networking, Intelligent Cellular and Security Solutions and Connectivity and Cable Solutions segments. The top line beat the consensus estimate of $2,303 million.

Region-wise, revenues increased in Canada (up 30.7% to $130.8 million) and the United States (24.4%, $1,495.1 million), partially offset by a decline in Europe, Middle East and Africa (EMEA) region (down 5.4% to $396 million), the Asia Pacific (7.7%, $210.9 million) and the Caribbean and Latin America (4.9%, $148.6 million).

Segment Results

Sales in Connectivity and Cable Solutions were up 27.9% to $1,007.7 million, driven by fiber products and strength in end-market demand. Sales in Outdoor Wireless Networks came in at $382.1 million, up 6.9% year over year, owing to a faster 5G rollout and growth in integrated solutions.

Sales in Networking, Intelligent Cellular and Security Solutions increased 24.5% to $257.9 million due to the highest-ever Ruckus sales. Sales in Access Network Solutions totaled $342.3 million, up 1.3% year over year, driven by Access Technologies. Sales from the Home Networks business declined to $391.4 million from $415.1 million due to supply chain adversities.  

In April 2021, CommScope announced that it intends to separate its Home Networks business to create an independent publicly traded entity. The tax-free spin-off is part of CommScope NEXT, a long-term growth strategy that focuses on eliminating redundant processes and non-value-added complexity and costs to bolster business optimization. Due to the ongoing supply chain adversities, the company has decided to suspend the separation plan and take an appropriate call later, depending on the market conditions.

Other Quarter Details

Gross profit improved to $736.3 million from $653 million in the year-ago quarter due to higher revenues. Total operating expenses in the quarter decreased to $580.7 million from $632 million. Consequently, operating income improved to $155.6 million from $21 million in the year-ago quarter. Adjusted EBITDA was $347.6 million compared with $259.1 million a year ago.

Cash Flow & Liquidity

In the first nine months of 2022, CommScope utilized $196.7 million cash in operating activities against an operating cash flow of $134.7 million in the prior-year period. As of Sep 30, 2022, the company had $145.5 million in cash and cash equivalents with $9,576.8 million of long-term debt. The company had $105 million in outstanding debt under its asset-based revolving credit facility and had a borrowing capacity of $779.1 million.

Outlook

Core adjusted EBITDA for 2022 is expected in the range of $1.15–$1.25 billion, while that for 2023 is estimated within $1.35–$1.5 billion. Net leverage for 2022 is likely to be within the range of 6.8x–7.2x.

Zacks Rank & Stocks to Consider

CommScope currently has a Zacks Rank #3 (Hold).

A better-ranked stock in the broader industry is Sierra Wireless, Inc. SWIR, carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Sierra Wireless has a long-term earnings growth expectation of 15% and delivered an earnings surprise of 229.9%, on average, in the trailing four quarters. Over the past year, the stock has gained 80.3%. Earnings estimates for the current year have moved up 4400% since October 2021. Sierra Wireless continues to launch innovative products for business-critical operations that require high security and optimum 5G performance.

InterDigital, Inc. IDCC, sporting a Zacks Rank #1, is another key pick for investors. It has a long-term earnings growth expectation of 25% and delivered a stellar earnings surprise of 81.9%, on average, in the trailing four quarters.

InterDigital is focused on pursuing agreements with unlicensed customers in the handset and consumer electronics markets. The company aims to become a leading designer and developer of technology solutions and innovation for the mobile industry, IoT and allied technology areas. InterDigital’s global footprint, diversified product portfolio and ability to penetrate different markets are impressive.

Comtech Telecommunications Corp. CMTL, sporting a Zacks Rank #1, is another key pick. Headquartered in Melville, NY, the company is a leading global provider of next-generation 911 emergency systems and secure wireless communications technologies to commercial and government customers.    

Comtech’s key satellite earth station modems incorporate forward error correction and bandwidth compression technologies, which enable its customers to optimize their satellite networks by either reducing their satellite transponder lease costs or increasing data throughput. It holds leadership positions in the market for high-throughput modems used in cellular backhaul.

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