Earning Scorecard: Research In Motion (RIMM

Research In Motion Ltd. (RIMM) reported second quarter 2012 financial results, with both the top and bottom line falling short of the Zacks Consensus Estimate.

Research In Motion reported weak financial outlook for the third quarter of fiscal 2012. Revenue is expected to range between $5.3 billion and $5.6 billion, while quarterly EPS is expected in the range of $1.20 – $1.40. However, management expects BlackBerry smartphones shipment to increase within the range of 13.5 million to14.5 million mainly driven by the launch of new BlackBerry 7 based smartphones.

Second Quarter Highlights

Total revenue in the reported quarter was $4,168 million, down 9.8% year over year and was also below the Zacks Consensus Estimate of $4,522 million.

Net income in the second quarter of fiscal 2012 was $329 million or 63 cents per share compared with a net income of $797 million or $1.46 per share in the prior-year quarter. Adjusted EPS (excluding cost optimization program expense) of 80 cents also missed the Zacks Consensus Estimate of 89 cents.

Gross margin in the reported quarter was 38.7% compared with 44.5% in the year-ago quarter and 43.9% in the previous quarter. During quarter, Research In Motion shipped around 10.6 million BlackBerry smartphones and around 200,000 BlackBerry Playbook tablets.

Agreements of Analysts

Of the 36 analysts covering the stock in the last 7 days, 2 analysts revised their estimates upward for the third quarter of 2012, but 7 analysts moved in the opposite direction. Likewise, for the fourth quarter of 2012, out of the 42 analysts covering the stock, 6 analysts increased their estimates while 17 analysts decreased their estimates.

For fiscal 2012, out of the 39 analysts covering the stock, none revised their estimates upward while 12 analysts decreased their estimates. Similarly, for fiscal 2013, out of the 41 analysts covering the stock, 2 analysts revised their estimates upward, but 19 analysts moved in the opposite direction.

Currently, the Zacks Consensus EPS Estimate for the third quarter of 2012 is pegged at $1.24. The projected annual growth is negative 28.90%. Similarly, for the fourth quarter, the current Zacks Consensus EPS Estimate of $1.50 indicates a loss of 15.97% year over year.

Magnitude of Estimate Revisions

In synergy with the analysts’ estimates, during the last 7 days, the Zacks Consensus Estimate for the third quarter of fiscal 2012 was 3 cents above the current estimate of $1.27. Similarly, for the fourth quarter of fiscal 2012, the Zacks Consensus Estimate was 7 cents above the current estimate of $1.50.

For fiscal 2012, the Zacks Consensus Estimate was pegged at $5.26, which is 39 cents above the current estimate. Similarly, for fiscal 2013, the Zacks Consensus Estimate was 39 cents above the current estimate of $4.92.

Earning Surprises

Except for the last quarter, the company has consistently beat the Zacks Consensus Estimates with a relatively better margin. The third and fourth the quarter contain 0.00% and (3.33) earning potentials (essentially a proxy for future earning surprises). Similarly, fiscal 2012 and fiscal 2013 reflects 2.88% and 2.03% downside potentials.

Our Recommendation

Booming smartphone markets and strong fundamentals, coupled with Research In Motion’s strong brand value and release of new BlackBerry 7 smartphone will act as positive catalysts for growth. Despite these positive factors, we expect stiff competition from Google Inc.’s (GOOG) Android-based smartphones and Apple Inc.’s (AAPL) iPhones to result in loss of market share.

We, thus, maintain our long-term Neutral recommendation for Research In Motion Ltd. Currently, Research In Motion Ltd has a Zacks #3 Rank, implying a short-term Hold rating on the stock.

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