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Semtech (SMTC) Q3 Earnings In Line; Sales Miss Estimates

Zacks Equity Research

Semtech Corporation SMTC reported third-quarter fiscal 2017 earnings of 28 cents per share, in line with the Zacks Consensus Estimate. Adjusted earnings per share exclude one-time items but include stock-based compensation expense.

Shares of Semtech have been steadily treading higher on a year-to-date basis. The stock has returned 60.15% compared with the Zacks Semi-Analog and Mixed industry’s gain of 21.60%.

Revenues

Semtech’s total revenue was $137.2 million, up 0.9% sequentially and 18.5% year over year. The upside was driven by strong demand for the company’s consumer and communication end-markets, partially offset by weakness in the enterprise market.

Reported revenues came within management’s expected range of $134.0 million to $142.0 million but below the Zacks Consensus Estimate of $139.0 million.

Distribution sales represented approximately 64% of total revenue, while direct sales accounted for the rest.

Bookings

During the quarter, bookings increased 48% year over year. However, the book-to-bill ratio was above 1.

Margins

Reported gross margin was 59.1%, down 110 basis points (bps) sequentially and 100 bps year over year. The decline was due to an unfavorable mix.

Semtech’s operating expenses (selling, general and administrative (SG&A) + product development and engineering) of $60.7 million increased 5.4% from $57.6 million in the year-ago quarter. As a percentage of sales, both SG&A, and product development & engineering expenses decreased. The net result was an operating margin of 28.5% compared with 16.3% in the third-quarter of fiscal 2016.

Net Income

On a GAAP basis, Semtech recorded net income of $30.8 million or 46 cents per share versus $10.7 million or 16 cents per share a year ago.

On a pro forma basis, Semtech generated earnings per share of 28 cents compared with 12 cents a year ago.

Balance Sheet & Cash Flow

Semtech ended the quarter with cash and cash equivalents of $298.0 million compared with $238.9 million in the previous quarter. Accounts receivables were $59.2 million, up from $57.0 million in the prior quarter. Days sales outstanding increased by two to 38.

Total debt (short term plus long term) was $247.9 million compared with $247.7 million in the previous quarter.

During the quarter, cash flow from operations was $39.2 million, capital expenditure was $8.4 million and free cash flow totaled $30.8 million.

Guidance

For the fourth quarter of fiscal 2017, on a non-GAAP basis, management expects revenues in the range of $134.0 million to $142.0 million. Gross profit margin is expected within 60.0–60.5%.

Management projects SG&A expense within $27–$28 million, and research and development expense of $24–$25 million.

GAAP earnings per share are expected in the range of 13–17 cents, while non-GAAP earnings are projected within 33–37 cents. The Zacks Consensus Estimate is pegged at 27 cents.

SEMTECH CORP Price, Consensus and EPS Surprise

 

SEMTECH CORP Price, Consensus and EPS Surprise | SEMTECH CORP Quote

Our Recommendation

Semtech Corp. manufactures a wide range of analog and mixed-signal semiconductors, including Standard Semiconductor Products, Rectifier and Assembly Products and Other Products.

We believe that Semtech’s new design wins, product introductions and solid execution will boost revenues and margins in the near term. However, challenges to several key end markets could weigh on the company’s prospects.

Currently, Semtech has a Zacks Rank #3 (Hold). Some better-ranked stocks in the industry include Cognex Corporation CGNX, Itron, Inc. ITRI and Teradyne Inc.  TER with a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Cognex Corporation delivered a positive earnings surprise of 24.92% in the trailing four quarters.

Itron, Inc. delivered a positive earnings surprise of 30.55%, on average, in the trailing four quarters.

Teradyne Inc. delivered a positive earnings surprise of 19.26% in the trailing four quarters.

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