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Microchip (MCHP) Q2 Earnings In Line, Revenues Miss Estimates

Zacks Equity Research

Microchip Technology Incorporated MCHP reported second-quarter fiscal 2020 non-GAAP earnings of $1.43 per share, in line with the Zacks Consensus Estimate. The figure was within management’s guided range of $1.37-$1.49 per share. Notably, the figure declined from $1.81 reported in the year-ago quarter.

Net sales declined 6.6% from the year-ago quarter to $1.338 billion on a non-GAAP basis. The figure also missed the Zacks Consensus Estimate of $1.353 billion. Notably, the top line was lower than the mid-point of management’s guided range of $1.323-$1.375 billion (mid-point $1.349 billion).

Notably, the impact of Huawei shipment limitations acted as the primary tailwind during the reported quarter. Further, negative developments pertaining to the U.S.-China trade war added to woes.

Nonetheless, strength in microcontroller business and portfolio expansion across majority of the operating domains drove the results.

Microcontrollers and analog contributes approximately 53.3% and 28.7%, respectively, to total revenues in the second quarter. Notably, Microcontroller business was down 1.3% on a sequential basis, while analog business was up 0.2% quarter over quarter.

The company is gaining from robust demand for 8-bit, 16-bit and 32-bit microcontrollers. We believe that Microchip's expanding product portfolio driven by new launches will continue to expand customer base.

Microchip Technology Incorporated Revenue (Quarterly)

 

Microchip Technology Incorporated Revenue (Quarterly)

Microchip Technology Incorporated revenue-quarterly | Microchip Technology Incorporated Quote

Margins

Microchip reported non-GAAP gross margin of 62.2% expanding 90 bps on a year-over-year basis.

Non-GAAP operating expenses, as percentage of revenues, were up 90 bps year over year to 25.6%. The increase can primarily be attributed to higher research & development (R&D) and selling, general & administrative (SG&A) expenses.

Consequently, non-GAAP operating margin contracted 20 bps from the year-ago quarter to 36.7%.

Balance Sheet & Cash Flow

The company exited the quarter under review with $405.1 million of cash and short-term investments compared with $437.1 million reported in the previous quarter. Total debt (long plus current portion) amounted to $9.8 billion compared with $10.08 billion in the previous quarter.

Cash flow from operating activities was $396 million during the quarter.

Notably, the company paid $315.5 million of total debt during the quarter.

During the reported quarter, the company announced a quarterly cash dividend of 36.65 cents per share.

Guidance

Microchip forecasts third-quarter fiscal 2020 net sales of $1.204-$1.311 billion (mid-point $1.257 billion). The Zacks Consensus Estimate for the same is pegged at $1.35 billion.

For the third-quarter, non-GAAP earnings are anticipated in the range of $1.12-$1.32 per share (mid-point $1.22 billion). The Zacks Consensus Estimate for the same is pegged at $1.44 per share.

Non-GAAP gross margin is anticipated in the range of 61-61.4%. Non-GAAP operating expenses, as percentage of sales, are projected at 26.2-28%, while operating margin is expected at 33-35.2%.

Microchip's inventory days in the third quarter are expected between 131 and 144 days. Capital expenditures are estimated to be in the range of $20-$25 million.

For fiscal 2020, capital expenditures are projected to be in the range of $90 million and $100 million.

Zacks Rank & Key Picks

Microchip carries a Zacks Rank #4 (Sell).

Some better-ranked stocks in the broader technology sector are Universal Display Corporation OLED, Fortinet, Inc. FTNT and Taiwan Semiconductor Manufacturing Company Ltd. TSM. Each of the stocks flaunt a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings growth rate for Universal Display, Fortinet and Taiwan Semiconductor is currently pegged at 30%, 14% and 10.4%, respectively.

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