Avago (AVGO) Beats Q1 Earnings on Accretive Acquisitions - Analyst Blog
Avago Technologies Limited (AVGO) recorded strong first-quarter fiscal 2015 results (ended Feb 1, 2015) with substantial year-over-year improvements in revenues and earnings. The stellar performance came on the back of accretive acquisitions like LSI Corporation and PLX Technology Inc.
Net income (GAAP) for the reported quarter was $351 million or $1.26 per share compared with $134 million or 53 cents per share in the year-ago quarter. The significant year-over-year improvement was primarily attributable to more than a two-fold jump in revenues.
Excluding non-recurring items, Avago recorded non-GAAP net income of $596 million or $2.09 per share compared with $217 million or 84 cents per share in the year-ago quarter. The huge increase in recurring earnings was largely driven by higher revenues in first-quarter fiscal 2015. Recurring earnings (with stock-based compensation adjustments) of $1.99 per share also came ahead of the Zacks Consensus Estimate of $1.78.
Quarter Details
GAAP net revenue was $1,635 million in first-quarter fiscal 2015 compared with $709 million in the prior-year quarter. The surge in revenues was primarily due to synergies from acquisitions of LSI and PLX and strength in wireless revenues.
Non-GAAP net revenue from continuing operations was $1,657 million, up 134% year over year. Revenues for the reported quarter beat the Zacks Consensus Estimate of $1,637 million.
Revenues from Wireless Communications accounted for 40% of the total revenue and increased 90% year over year. Revenues from Wired Infrastructure represented 21% of the total revenue and improved 52% year over year. Avago generated 10% of its revenue from the Industrial & Other market. Quarterly revenues from Enterprise Storage – a new end market for Avago dealing with LSI's hard disk drive and service storage connectivity product lines – accounted for 29% of the total revenue.
Gross margin for the reported quarter improved to 51% of net revenue from 48% in the year-ago quarter. Operating income was $401 million in the first-quarter fiscal 2015, considerably up from $139 million in the prior-year quarter.
Cash Flow & Balance Sheet
Avago generated $481 million in cash from operations in the quarter under review compared with $229 million in the prior-year period. Capital expenditures were $162 million at the end of the quarter as against $52 million in the year-earlier period.
As of Feb 1, 2015, Avago had $2,569 million in cash and cash equivalents. Long-term debt was $4,531 million. During the quarter, the company paid a cash dividend of 35 cents per share, totaling approximately $89 million.
Subsequent to the end of the quarter, Avago and Emulex Corporation (ELX) entered into an agreement to acquire Emulex – a leader in network connectivity, monitoring and management – for approximately $606 million. Emulex is important to Avago’s enterprise storage businesses and aligns well with its business model.
Guidance
Along with the quarterly results, Avago also provided guidance for second-quarter fiscal 2015. GAAP revenue is expected to be down 4% to flat sequentially. Operating expenses are estimated to be approximately $422 million. Capital expenditure is projected to be approximately $180 million. Non-GAAP net revenue is expected in the range of down 3% to up 1% sequentially.
Avago currently carries a Zacks Rank #3 (Hold). Better-ranked stocks from the same space include Amkor Technology, Inc. (AMKR) and Cirrus Logic Inc (CRUS), both sporting a Zacks Rank #1 ( Strong Buy).
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