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Semtech (SMTC) Q4 Earnings Miss Estimates, Sales Beat

Zacks Equity Research

Semtech Corporation SMTC reported fourth-quarter fiscal 2017 earnings of 25 cents per share, missing the Zacks Consensus Estimate by a penny. Adjusted earnings per share exclude one-time items but include stock-based compensation expense.

Since the company reported its recent fiscal fourth-quarter earnings, the stock has declined more than 1%. However, shares of Semtech have been steadily treading higher over the past one year. The stock returned 63.28% compared with the Zacks Semi-Analog and Mixed industry’s gain of 42.05%.

Revenues

Semtech’s total revenue was $140 million, up 2.1% sequentially and 18.1% year over year. The upside was driven by strong demand for the company’s enterprise computing, industrial and communication end-markets, and partially offset by weakness in the consumer market.

Also, reported revenues came in above the Zacks Consensus Estimate of $138 million.

Distribution sales represented approximately 69% of total revenue, while direct sales accounted for the rest.

Bookings

During the quarter, bookings increased sequentially as well as year over year. Also, the book-to-bill ratio was above 1.

Margins

Reported gross margin was 59.6%, up 90 basis points (bps) sequentially and 90 bps year over year due to the impact of lower sequential Comcast warrant expense and a more favorable mix.

Semtech’s operating expenses (selling, general and administrative (SG&A) + product development and engineering) of $61.2 million decreased 2.4% from $62.7 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 10.9% compared with 2.7% in the fourth-quarter of fiscal 2016.

Net Income

On a GAAP basis, Semtech recorded net income of $8.02 million or 12 cents per share versus $1.25 million or 2 cents per share a year ago.

On a pro forma basis, Semtech generated earnings per share of 25 cents compared with 10 cents a year ago.

Balance Sheet & Cash Flow

Semtech ended the quarter with cash and cash equivalents of $297.1 million compared with $298 million in the previous quarter. Accounts receivables were $51.4 million, down from $59.2 million in the prior quarter.

Total debt (short term plus long term) was $241 million compared with $247.9 million in the previous quarter.

During the quarter, cash flow from operations was $32.9 million, capital expenditure was $19.2 million and free cash flow totaled $13.8 million.

Guidance

For the first quarter of fiscal 2018, on a non-GAAP basis, management expects revenues in the range of $142 million–$150 million. The Zacks Consensus Estimate is pegged at $146.4 million. Gross profit margin is expected within 60–61.0%.

Management projects SG&A expense within $26.5–$27.5 million, and research and development expense of $23.5–$24.5 million.

Non-GAAP earnings per share are expected in the range of 39–43 cents. The Zacks Consensus Estimate is pegged at 28 cents.

Our Take

Semtech 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.

Semtech Corporation Price, Consensus and EPS Surprise

 

Semtech Corporation Price, Consensus and EPS Surprise | Semtech Corporation Quote

Currently, Semtech has a Zacks Rank #3 (Hold). Stocks worth considering in the industry include Texas Instruments TXN, sporting a Zacks Rank #1 (Strong Buy) and Xcerra Corporation XCRA and Internap Corporation INAP, carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Texas Instruments delivered a positive earnings surprise of 7.09%, on average, in the trailing four quarters.

Xcerra Corporation delivered a positive earnings surprise of 187.5%, on average, in the trailing four quarters.

Internap Corporation delivered a positive earnings surprise of 10.88%, on average, in the trailing four quarters.

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