Analog Devices Beats Q2 Earnings & Revenue Estimates - Analyst Blog
Analog Devices Inc. (ADI) reported second-quarter fiscal 2015 earnings of 73 cents per share, which beat the Zacks Consensus Estimate by a penny. Adjusted earnings per share exclude one-time items but include stock-based compensation expenses.
Revenues
Analog Devices generated revenues of $821.0 million, up 6.4% sequentially and 18.2% year over year. Also, revenues were toward the higher end of the company’s guidance range of $810–$830 million and beat the Zacks Consensus Estimate of $818.0 million.
Revenues by End Market
The Industrial market generated 48% of Analog Devices’ total revenue (up 11.1% sequentially and 19.9% year over year). This is a diversified market for the company, which includes the industrial automation, instrumentation, energy, defense and health care segments. Communications generated 22% of total revenue, down 9.7% sequentially but up 17.2% year over year. The Automotive segment generated around 17% of Analog Devices’ second-quarter revenues, up 12.6% sequentially and 2.7% from the year-ago quarter. The Consumer segment, which Analog Devices clubbed with the computing and handset businesses, was up 14.6% sequentially and 40.4% year over year. It accounted for 12% of total revenue.
Industrial, Automotive and Consumer segments exceeded revenue expectations for the quarter and offset a weak wireless infrastructure capex environment.
Margins
Reported gross margin was 66.5%, up 92 basis points (bps) sequentially and 49 bps year over year backed by a favorable product mix.
Analog Devices reported operating expenses of $269.6 million, up 13.1% from $238.3 million incurred in the year-ago quarter. GAAP operating margin of 30.3% was down 140 bps from the year-ago quarter margin of 31.7%.
Net Profit
On a GAAP basis, Analog Devices recorded a net profit of $205.3 million or 65 cents per share compared with $187.4 million or 59 cents in the prior-year quarter.
The company generated adjusted net profit of $232.6 million compared with $187.4 million in the year-ago quarter. Pro-forma earnings came in at 73 cents per share as against 59 cents a year ago.
Balance Sheet
Analog Devices exited the second quarter with cash and short-term investments of approximately $3.07 billion, up 7% sequentially. Trade receivables were $408.5 million, up from $402.4 million in the last quarter.
Long-term debt was approximately $498.4 million, down from $872.9 million in the first quarter.
Cash generated from operations was around $344.0 million. Analog Devices spent $49.2 million on capex, $24.3 million on share repurchases and $124.9 million on cash dividends.
Additionally, the company’s board of directors announced a cash dividend of 40 cents. The quarterly dividend will be paid on Jun 9, 2015 to shareholders of record at the close of business on May 29, 2015.
Guidance
Management expects third-quarter fiscal 2015 revenues in the range of $825 million–$865 million. The Zacks Consensus Estimate is pegged at $842 million. On a non-GAAP basis, the company estimates gross margin of approximately 66.0%, operating expenses are expected to be up 2% to 3% sequentially; interest and other expense of approximately $5 million, tax rate of 15% and earnings per share in the range of 71–77 cents. The Zacks Consensus Estimate is pegged at 76 cents.
On a GAAP basis, the company estimates operating expenses to be up 1%-3%, tax rate of 16.5% and earnings per share in the range of 63–69 cents.
Our Take
A significant percentage of Analog Devices’ revenues is realized from the Industrial and Communication markets. While the industrial market remains strong, the communication market was weak this quarter. A weaker-than-expected wireless infrastructure market, predominantly in North America and China resulted in sequentially lower revenues.
However, management believes that these declines are temporary and that Analog Devices will continue to benefit as 4G penetration rates increase from their current low levels.
Additionally, the Hittite Microwave acquisition (closed in the third quarter) will continue to help Analog Devices to offer high frequency chips and other signal processors. Hittite’s offerings will strengthen Analog Devices’ presence in the Industrial and Communication end markets.
While investments to strengthen the product line and deal with increasing competition will continue, the policy of returning cash through dividends and share buybacks will support investor sentiment.
Analog Devices has a Zacks Rank #3 (Hold).
Better-ranked stocks in the technology sector include Orbitz Worldwide, Inc. OWW, PetMed Express, Inc. PETS and Ellie Mae, Inc. ELLI. All these stocks sport a Zacks Rank #2 (Buy).
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