What happened
Shares of CommScope Holding Company (COMM 6.19%) tumbled on Tuesday following the communication network infrastructure provider's first-quarter report. CommScope beat analyst estimates across the board, but it revised its guidance to reflect new challenges. The stock was down about 29% at 12:45 p.m. EDT.
So what
CommScope reported first-quarter revenue of $1.12 billion, down 1.5% year over year but about $10 million above the average analyst estimate. Sales in the connectivity segment declined by 1% year over year to $674 million, while sales in the mobility solutions business slumped 2% to $447 million. Both segments enjoyed sales growth in international markets but suffered sales declines in the U.S.
A CommScope cable tray. Image source: CommScope.
Non-GAAP earnings per share came in at $0.49, down from $0.52 during the prior-year period but $0.02 better than analysts were expecting. On a GAAP basis, the connectivity segment enjoyed a 13% rise in operating income, while the mobility solutions segment suffered a 31% decline.
Investors were more focused on the company's guidance than its first-quarter results. Due to expected price reductions at certain large North American operators and higher input costs, CommScope was forced to reduce its full-year guidance. The company left its expected revenue range of $4.675 billion to $4.825 billion unchanged, but it reduced its guidance for non-GAAP EPS to a range of $2.33 to $2.48. That's down from the previous range of $2.56 to $2.71, but up from $2.14 reported for 2017.
Now what
CommScope plans to cut costs to partially offset the customer price changes, focusing on manufacturing optimization, value engineering projects, and additional product in-sourcing. The company still expects to grow non-GAAP earnings in 2018, but not by nearly as much as it expected just a few months ago.
The guidance cut is certainly a disappointment, but the market's reaction may be overly severe. Shares of CommScope now trade for around 11.4 times the midpoint of the company's new non-GAAP EPS guidance range. That beaten-down valuation may give value investors a reason to take a closer look at the stock.
