What Investors Need to Know Going Into ARRIS Group, Inc's Earnings

ARRIS Group (ARRS) is set to report its first-quarter earnings on Tuesday, as shares have stumbled since its last earnings report. The company that makes cable boxes for Comcast (CMCSA 1.44%) (as well as most of the other large cable companies in the U.S. and abroad) was dealt a blow when it was rumored Apple (AAPL -1.24%) was negotiating with Comcast to provide a streaming TV service.

Although the idea of Comcast and Apple over Arris seems farfetched for multiple reasons, IP-based video services are the logical next step in delivering television programming to households. That's a trend that Arris is well positioned to take advantage of. Despite slow growth in the cable industry, Arris continues to post strong results. Its acquisition of Motorola Mobility has spurred another round of growth for the consumer premises equipment provider.

Let's see if we can expect continued growth from Arris when it reports.

Stats on ARRIS

Source: Yahoo! Finance.

Delivering results to the Street
Arris delivered strong results last quarter, and delivered guidance about in-line with analysts' expectations. The company forecast revenue of $1.17 billion to $1.21 billion and non-GAAP EPS of $0.42 to $0.47. The Street since lowered its expectations for EPS by a penny.

Despite the strong earnings results, large investors started dumping the stock in March. The share price is nearly 16% off the all-time high it reached just after the company reported its fourth quarter earnings. Comparatively, the S&P 500 is up 2.2% in the same period.

Recent developments
The biggest development affecting Arris since its last earnings report doesn't involve the company at all. Rather, it involves its largest customer, Comcast, and the potential for it to strike a deal with Apple.

In March, The Wall Street Journal reported Apple was in talks with Comcast to provide an IP-based video service to Comcast's subscribers. The deal, if true, could bring Apple TV front and center in the living room.

Such a move seems unlikely, however, considering Comcast holds a 7.7% stake in Arris. Even if such a deal were to materialize, the product Apple wants to deliver requires a lot of networking equipment Arris is more than capable of delivering.

Arris is unphased, charging ahead with its plans to facilitate IP-based delivery. The company most recently acquired SeaWell Networks. The two companies have worked together on products in the past, so they ought to integrate well. SeaWell's adaptive bitrate streaming technology should enhance Arris' video distribution solutions.

Meanwhile, Arris's top customers have continued growing video subscribers. Comcast added 24,000 video subscribers (analysts expected a loss of 26,000 subscribers.) Combined, Arris's top three customers added 47,000 net new subscribers, so business is relatively strong. Of course, Arris also benefits from upgrades to customer premise equipment like home gateways and new cable boxes.

What to watch for
When Arris reports earnings on Tuesday, look for strength in sequential revenue growth. The company has currently guided for flat revenue growth from the fourth quarter, which is in-line with last year's results. Sequential strength is key to the company's future growth metrics as it comes up against comparable quarters that include its Motorola Home acquisition.

Additionally, investors should watch for debt retirement in relation to its Motorola Home acquisition, as well as sequential improvement in gross margin, as its larger CPE division drags overall margins down year over year.