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Texas Instruments (TXN) Q1 Earnings & Revenues Beat Estimates

Zacks Equity Research

Texas Instruments TXN reported first-quarter 2019 earnings of $1.26 per share, which came within management’s guided range of $1.03-$1.21.

Excluding discreet tax benefit of 4 cents from the reported figure, earnings of $1.22 per share comfortably surpassed the Zacks Consensus Estimate of $1.13. However, the reported figure decreased 6.7% year over year and 0.8% on a sequential basis.

The company delivered revenues of $3.59 billion, beating the Zacks Consensus Estimate of $3.48 billion. Further, the figure came within the company’s guided range of $3.34-$3.62 billion. However, the figure was down 5% from the year-ago quarter and 3.3% sequentially.

Decline in demand in the reported quarter affected the company's Analog and Embedded Processing businesses, in turn the top line.

Notably, shares of the company have plunged 1.69% in the after-hours trading. This can primarily be attributed to sluggishness in demand for chips in the semiconductor industry. The trend is anticipated to persist in the days ahead, which does not bode well for Texas Instrument. Moreover, ongoing U.S.-China trade war poses a major risk to the company’s performance in the near term.

Nevertheless, the company’s focus on innovation of product portfolio is evident from its growing research and development (R&D) spending. This continues to be a key catalyst. Moreover, the company remains confident on its portfolio strength, efficient manufacturing strategies and optimized capital allocation in growth areas. Additionally, Texas Instruments continues to increase investments in the automotive and industrial markets which are expected to yield good returns.

All these endeavors have aided the company in winning shareholders’ confidence.

Coming to the price performance, Texas Instrument has gained 13% over a year outperforming the industry’s growth of 5.5%.



End-Market in Detail

Softness in demand environment affected the Texas Instrument’s performance in the industrial and automotive market where revenues were down in mid-single digit.

It also affected the company’s presence in personal electronics market where revenues were down in low-double digits. Further, sluggish PC and smartphone markets remained headwinds.

However, the company performed better than expected in the communications equipment market in the first quarter, thanks to shipment of products required for 5G technology. Revenues in this market were up 30% from the year-ago quarter.

Segments in Detail

Analog: The company generated $2.52 billion from this segment (70.1% of total revenues), which decreased 1.9% from the year-ago quarter. This was due to weak performance of high-volume and power product lines. Reduced factory loading also affected this segment. However, the segment experienced strong performance of signal chain products.

Embedded Processing: This segment generated $796 million revenues (22.1% of total revenues), down 14% year over year. This was primarily owing to weak performance of processors and connected microcontrollers, and reduced factory loadings during the reported quarter. Further, the segment failed to leverage the increasing 5G content.

Other: Revenues in this segment were $280 million (7.8% of total revenues). The figure was down 5.7% from the year-ago quarter.

Texas Instruments Incorporated Price, Consensus and EPS Surprise

Texas Instruments Incorporated Price, Consensus and EPS Surprise | Texas Instruments Incorporated Quote

Operating Details

Texas Instruments’ gross margin of 62.9% was down 170 bps from the year-ago quarter.

Selling, general and administrative (SG&A) and R&D expenses were $414 million and $389 million, respectively, in reported quarter. We note that SG&A figure went down 4.4% but R&D expenses were up 1% on a year-over-year basis.

Operating margin was 38.4%, contracting 240 bps from the prior year quarter.

Balance Sheet and Cash Flow

As of Mar 31, 2019, cash and short-term investments balance came in $4.1 billion which was down from $4.2 billion as of Dec 31, 2018.

At the end of the reported quarter, the company had long-term debt of $5.1 billion, up from $4.3 billion in the prior quarter.

The company generated $1.12 billion of cash from operations, down from $2.14 billion in the previous quarter.

Capex was $251 million in the first quarter. Free cash flow stood at $856 million.

Guidance

For second-quarter 2019, the company expects revenues between $3.46 billion and $3.74 billion. The Zacks Consensus Estimate for revenues is pegged at $3.68 billion.

Earnings are expected in the range of $1.12-$1.32 per share. The guidance includes an estimated $10 million discrete tax benefit. The Zacks Consensus Estimate for earnings is pegged at $1.25.

Zacks Rank & Stocks to Consider

Currently, Texas Instruments carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the broader technology sector are Fortive FTV, Mettler-Toledo International MTD and AMETEK AME. All the three stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Long-term earnings growth rate for Fortive, Mettler-Toledo International and AMETEK is currently pegged at 11.94%, 12.57% and 9.58%, respectively.

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