What Drove Motorola Solutions’ Earnings Beat?

Motorola Solutions (NYSE:MSI) published its Q3 2018 results on Thursday, November 1, beating market expectations, driven by strong demand for its land mobile radio products and the impact of its recent acquisitions. While reported revenues grew by about 13% year-over-year to $1.87 billion, they were up by about 4% adjusted for acquisitions and currency effects.  While the company continues to project full-year revenue growth of about 14.5%, it boosted its EPS guidance to between $7.00 to $7.05 per share from $6.79 to $6.89 previously. Below, we take a look at some of the trends that drove the results and what lies ahead for Motorola Solutions.

We have created an interactive dashboard on what to expect from Motorola Solutions in 2018 outlining our expectations for the company’s performance over the remainder of 2018. You can modify any of our key drivers and forecasts to see how changes would impact the company’s results.

Products and Systems Integration

The company’s Products and Systems Integration business, which includes its land mobile radio business (LMR) and other products such as video surveillance cameras sold by Avigilon, saw revenues grow by 10% year-over-year to $1.29 billion, driven by demand from the Americas and the Europe, the Middle East and Africa region.  The uptake for Motorola’s LMR systems has been robust, driven by a strong global economy, the company’s ecosystem lock-in and the mission-critical nature of its applications that make it unlikely that existing customers will switch to competitors. Backlog for the division also grew by $277 million year-over-year to $3.3 billion. However, adjusted operating margins for the segment declined by 290 bps to 21.4% due to higher operating expenses related to the company’s recent acquisitions. While Motorola doesn’t provide segment-specific guidance, it indicated that the division should see low-single-digit revenue growth going forward.

Services and Software 

The company’s Services and Software segment has also been performing well, with revenues growing by 22% year-over-year to $574 million, as the company recorded higher software sales while executing on its services contracts. Adjusted operating margins for the segment improved by 370 bps to 30.7% driven by a favorable gross margin mix. This business should continue to expand at a faster pace compared to products, driven by Motorola’s end-to-end platform for its offerings as well as the company’s growing installed base of systems. The services business, which has largely recurring revenues, saw its backlog rise by $295 million year-over-year to $6.2 billion.

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