Motorola Fires Back at Moody's - TheStreet

Motorola Fires Back at Moody's

After a downgrade, the company releases solid earnings and guidance a day early.
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Updated from 7:47 a.m. EDT



answered a Moody's debt downgrade Monday by reporting third-quarter earnings and revenue that are both well above analysts' consensus. It also guided both lines higher for the fourth quarter.

Motorola, which moved up publication of its earnings release to Monday morning from Tuesday night in response to the downgrade, said it earned $116 million, or 5 cents a share, in the latest quarter, compared with $111 million, or 5 cents a share, last year. Revenue rose 5% to $6.5 billion in the latest quarter.

Before a charge, Motorola, based in Schaumburg, Ill., earned $132 million, or 6 cents a share, in the latest quarter. Analysts surveyed by Thomson First Call had been predicting earnings of 3 cents a share on revenue of $6.3 billion.

For the fourth quarter, Motorola expects to earn 15 cents a share before items on sales of $7.5 billion to $7.8 billion. Analysts were forecasting earnings of 12 cents a share on revenue of $7.41 billion.

The company said four of its six business lines had higher year-over-year sales and three had higher operating earnings. Sequentially, all six segments had higher sales and five had higher operating earnings.

The early release of those results in particular is probably meant to rebuke Moody's, which said its downgrade "considers the weakened outlook for most of Motorola's business segments." Moody's cut Motorola's senior unsecured debt rating to Baa3 from Baa2, and its short-term debt rating to prime-3 from prime-2, and its subordinated debt to Baa3 with a negative outlook.

The action was "precipitated by concerns that revenue growth and a return to meaningful levels of profitability would remain challenged," with particularly stiff competition existing in its personal communications segment, Moody's said.

In the earnings release, Motorola said the cell-phone division's sales rose 8% to $2.9 billion, while orders jumped 44% to $3.7 billion. The company shipped 20.2 million phones, up about 19% from last year.

The higher sales reflected higher demand in the Americas, while sales in Asia fell as competition "remains intense in China, where despite a decrease in market share Motorola remained the market-share leader." It reported "very strong" order growth in Europe, Asia, and Latin America.

Motorola said its semiconductor segment, which it's in the process of spinning off, saw sales fall 4% to $1.2 billion in the quarter over last year, although orders rose 8% to $1.4 billion. The unit posted a GAAP loss of $76 million.

"The reduction in sales is primarily attributed to the segment's networking and wireless markets and was due to continued constraint of capital expenditures in the telecom market, as well as to increased competition in the wireless handset market," Motorola said.

In another riposte to Moody's, the company said the $1.1 billion of positive operating cash flow it produced in the quarter is among the six highest quarterly amounts it has ever produced.

Citing its $7 billion in cash and equivalents, ongoing positive cash flow, sales growth and other trends, Motorola said it believes "we are on the path of increasing the creditworthiness of the company in the furture."