CommScope Q2 results reflect 'challenging industry environment'

Second quarter 2017 sales declined year over year in all major geographic regions

CommScope, a US maker of infrastructure solutions for communications networks, has reported sales of $1.17 billion and net income of $55 million, or $0.28 per diluted share, for the quarter ended June 30, 2017.

In comparison, for the quarter ended June 30, 2016, CommScope reported sales of $1.31 billion and net income of $62 million, $0.32 per share. Non-GAAP adjusted net income for the second quarter of 2016 was $145 million, or $0.74 per diluted share.

"Our results for the second quarter reflect the continued impact of the challenging industry environment," said president and CEO Eddie Edwards. "We expect certain North American service providers to spend cautiously over the next few quarters due primarily to industry consolidation, competitive dynamics and timing of certain large projects. In the interim, we will continue to stringently manage our costs and work to position CommScope for long-term success.

"We believe that our recent acquisition of Cable Exchange and our new high-speed migration platform will enhance our position in the data center market over the longer term. We expect to return to overall growth in 2018."

Q2 2017 Overview

Second quarter 2017 sales declined year over year in all major geographic regions. Foreign exchange rate changes negatively affected revenue by less than 1 percent year over year.

Operating income in the second quarter of 2017 declined 25 percent year over year to $138 million. Non-GAAP adjusted operating income, which excludes amortisation of purchased intangibles, integration and transaction costs, restructuring costs and other special items, declined 17 percent year over year to $242 million. The decreases in operating income and non-GAAP adjusted operating income were driven by lower sales volumes and unfavourable mix of products sold, partially offset by the benefit of cost reduction initiatives and lower incentive compensation expense. In addition, lower intangible amortisation offset higher restructuring charges in operating income.

Q2 2017 Segment Overview

Q2 Connectivity Solutions segment sales declined 7 percent year over year to $726 million. Revenue declined in both indoor and outdoor network solutions. Modest growth in the Europe, Middle East and Africa region was more than offset by decreased sales in the S., Asia-Pacific and Latin American regions. While indoor network solutions sales remained weak, the company made progress improving its market position with multi-tenant and hyperscale datacentre customers. Outdoor network solutions sales were affected by fewer large projects in the Asia-Pacific region and industry competitive dynamics and consolidation, which impacted service provider spending patterns. Foreign exchange rate changes negatively affected revenue by less than 1 percent from the year-ago period.

Connectivity Solutions operating income declined 20 percent year over year to $75 million and non-GAAP adjusted operating income decreased 13 percent year over year to $146 million, or 20 percent of segment sales. Both operating income and non-GAAP adjusted operating income were impacted by lower sales volumes and unfavorable mix of products sold, partially offset by the benefit of cost reduction initiatives and lower incentive compensation expense.

Q2 Mobility Solutions segment sales declined 15 percent year over year to $448 million. Sales declined in all major geographic regions. The decrease is due primarily to a slowdown in spending at certain North American operators and fewer large projects in the Asia-Pacific region. Foreign exchange rate changes had a negative impact of less than 1 percent on Mobility Solutions segment sales compared to the year-ago period.

Mobility Solutions operating income declined 31 percent year over year to $63 million and non-GAAP adjusted operating income decreased 22 percent year over year to $96 million, or 21 percent of segment sales. Both operating income and non-GAAP adjusted operating income were impacted by lower sales volumes and unfavourable mix of products sold, partially offset by lower incentive compensation expense.

Outlook

In the near-term, CommScope management expects cautious spending patterns at certain North American service providers due primarily to industry competitive dynamics, consolidation and delayed timing of certain expected network upgrades. The company has already taken incremental actions to manage costs, including lowering incentive compensation; cutting selling, general and administrative expenses; and reducing its workforce.

Third quarter 2017 guidance is revenue of $1.1 billion to $1.15 billion; operating income of $105 million to $140 million; Non-GAAP adjusted operating income of $200 million to $240 million; earnings per diluted share of $0.20 to $0.25, based on 197 million weighted average diluted shares; non-GAAP adjusted earnings per diluted share of $0.50 "“ $0.55; and non-GAAP adjusted effective tax rate of approximately 35 percent.

Full year 2017 guidance is revenue of $4.5 billion to $4.6 billion; operating income of $500 million to $540 million; non-GAAP adjusted operating income of $885 million to $935 million; earnings per diluted share of $0.87 to $0.99, based on 198 million weighted average diluted shares; non-GAAP adjusted earnings per diluted share of $2.15 to $2.30; non-GAAP adjusted effective tax rate of approximately 35 percent; and cash flow from operations > $500 million.