Motorola Solutions' CEO Discusses Q1 2012 Results - Earnings Call Transcript

Motorola Solutions (MSI)

Q1 2012 Earnings Call

April 25, 2012 8:00 am ET

Executives

Shep Dunlap -

Gregory Q. Brown - Chairman, Chief Executive Officer, President and Chairman of Executive Committee

Edward J. Fitzpatrick - Chief Financial Officer and Executive Vice President

Mark F. Moon - Executive Vice President of Sales and Field Operations

Analysts

Jeffrey T. Kvaal - Barclays Capital, Research Division

Alkesh Shah - Evercore Partners Inc., Research Division

Craig Hettenbach - Goldman Sachs Group Inc., Research Division

Deepak Sitaraman - Crédit Suisse AG, Research Division

Tavis C. McCourt - Morgan Keegan & Company, Inc., Research Division

Ehud Gelblum - Morgan Stanley, Research Division

Peter Misek - Jefferies & Company, Inc., Research Division

Matthew Thornton - Avian Securities, LLC, Research Division

Dale Wettlaufer - Morningstar Inc., Research Division

Keith M. Housum - Northcoast Research

Presentation

Operator

Good morning, and thank you for holding. Welcome to the Motorola Solutions First Quarter 2012 Earnings Conference Call. Today's call is being recorded. If you have any objections, please disconnect at this time. The presentation material and additional financial tables are currently posted on the Motorola Solutions Investor Relations website.

In addition, a replay of this call will be available approximately 3 hours after the conclusion of this call over the Internet. The website address is www.motorolasolutions.com/investor. [Operator Instructions]

I would now like introduce Mr. Shep Dunlap, Vice President of Investor Relations. Mr. Dunlap, please go ahead.

Shep Dunlap

Thank you, and good morning. Welcome to our conference call to present Motorola Solutions' first quarter results. With me this morning are Greg Brown, Chairman and CEO; Ed Fitzpatrick, Executive Vice President and CFO; and Mark Moon, Executive Vice President, Sales and Field Operations. Greg and Ed will review our first quarter results, along with commentary, and Mark will join us for Q&A.

We have posted our earnings presentation and press release at motorolasolutions.com/investor. These materials also include GAAP to non-GAAP reconciliations for your reference. As always, I encourage you to review these materials.

A number of forward-looking statements will be made during this presentation. Forward-looking statements are any statements that are not historical facts. These forward-looking statements are based on the current expectations of Motorola Solutions, and we can give no assurance that any future results or events discussed in these statements will be achieved.

Any forward-looking statements represent our views only as of today and should not be relied upon as representing our views as of any subsequent date. Forward-looking statements are subject to a variety of risks and uncertainties that could cause our actual results to differ materially from the statements contained in this presentation.

And with that, I'd like to turn it over to Greg.

Gregory Q. Brown

Thanks, Shep. Good morning, and thank you for joining us today. Q1 highlighted another record quarter for Motorola Solutions as we achieved strong sales growth, improved operating leverage and returned significant capital to shareholders through our share repurchase program and quarterly dividend.

The most recent quarter included a number of significant product and solution launches that continue to demonstrate our unwavering commitment to deliver the best mission-critical solutions to our public safety and enterprise customers.

This morning, we reported record first quarter sales of $2 billion, an increase of 7% from Q1 of last year. On a GAAP basis, net earnings were $0.50 per share from continuing operations compared to $1.07 in the year-ago quarter. Non-GAAP net earnings from continuing operations were $0.59 per share compared to $0.54 per share in Q1 of last year, a 9% increase. And for the remainder of the call, we'll reference non-GAAP financial results unless otherwise noted.

Our Government business revenues increased 11%. North America, Asian Latin America all experienced double-digit growth, but we were also pleased to see growth in EMEA. Operating margins in the Government business improved 260 basis points year-over-year, due to strong sales growth across our portfolio and another quarter of disciplined cost management.

In our Enterprise business, sales declined 2% from the year-ago quarter, including an anticipated iDEN decline of $31 million. Growth in this business, excluding iDEN was 3%. This increase was a result of growth across our portfolio as customers continue to select our solutions.

Regionally, both North America and Asia had strong results, while EMEA was down slightly as we expected in comparison to an extraordinarily strong Q1 of 2011.

On the capital allocation front, we continue to make significant progress in our initiatives and path to net debt that we spoke about at our financial Analyst Meeting last month. During Q1, we paid $70 million in dividends and repurchased $1.4 billion in MSI stock, bringing the total repurchase amount to approximately $2.5 billion since the program was announced in July of last year.

I'll now turn it over to Ed Fitzpatrick to discuss our financial results in more detail. I'll then return to discuss operational highlights and provide additional commentary and perspective on our overall business performance.

Edward J. Fitzpatrick

Thanks, Greg. Q1 was another quarter of strong growth in operating leverage. Along with revenue growth of 7%, our disciplined expense management yielded an increase of operating earnings of 9% despite a $13 million increase in U.S. pension expense.

We saw broad-based revenue growth in our Government business with record first quarter sales of $1.3 billion, an increase of 11% in the prior year. Operating margin in the Government business improved 260 basis points, driven mainly by sales growth and continued leverage.

The Enterprise business declined 2% to $655 million, driven by unanticipated iDEN decline of approximately $31 million. Excluding iDEN, Enterprise posted growth of 3% as a result of growth across the broader portfolio. Operating margin in the Enterprise business declined 360 basis points. The decline was primarily attributable to iDEN. Increased pension and foreign currency expenses also impacted operating margins.

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