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Why Is Marvell Technology (MRVL) Down 13.1% Since its Last Earnings Report?

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A month has gone by since the last earnings report for Marvell Technology Group Ltd. MRVL. Shares have lost about 13.1% in that time frame.

Will the recent negative trend continue leading up to its next earnings release, or is MRVL due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Marvell Q4 Earnings & Revenues Beat Estimates, Up Y/Y

Keeping its earnings streak alive, Marvell reported better-than-expected fourth-quarter fiscal 2018 results. Quarterly revenues and earnings not only came ahead of the mid-point of the company’s guided ranges but also beat the respective Zacks Consensus Estimate.

Additionally, the top and bottom lines marked a significant year-over-year improvement. Per the company, this growth stemmed from better sales execution and efficient cost management.

Marvell president and CEO Matt Murphy stated in a press release that "Our strong fourth quarter and fiscal year results continue to demonstrate that Marvell's strategy is working and that our team is executing it very well.”

Quarter Details

Marvell’s revenues increased 8.7% year over year to $615.4 million surpassing the Zacks Consensus Estimate of $611.6 million. Moreover, reported revenues came ahead of the mid-point of management’s guided range of $595-$625 million (mid-point $610 million).

In the end markets, storage revenues (53% of total revenues) grew 4% year over year and 3% sequentially on better-than-expected demand at the SSD (Solid-State Drive) segments, along with elevated demand from enterprise and data-center operators.

The networking business (25%) increased 5% year over year and 3% sequentially mainly due to increase in the network of processor product line, i.e. switch, PHY and embedded.

Revenues from connectivity (14%) climbed 31% year over year, primarily driven by solid demand for “high-end voice-enabled” and home media streaming applications. However, sequentially, the segment’s revenues slipped 16%. Other product (8%) revenues during the quarter grew 20% year over year and 5% sequentially.

Marvell’s non-GAAP gross profit came in at $383.1 million, up 17% on a year-over-year basis. Gross margin also increased from 57.8% to 62.3% on a year-over-year basis, primarily buoyed by a favorable product mix and higher revenue base. Gross margin also came in marginally higher than management’s expectation of 62%.

Non-GAAP operating expenses rose 2.4% year over year to $217.6 million and were within the company’s expectations of $215-$220 million. As a percentage of revenues, operating expenses contracted 210 basis points to 35.4%. Marvell’s non-GAAP operating margins came in at 26.9% compared with 20.3% reported in the year-ago quarter. The results were positively influenced by higher gross margin and lower operating expenses as a percentage of revenues.

The company reported non-GAAP net income of approximately $164.8 million during the quarter as compared with $118.4 million reported in the prior-year quarter. On per-share basis, non-GAAP earnings came in at 32 cents, up 45.5% from the year-earlier quarter’s earnings of 22 cents. Quarterly non-GAAP earnings also came ahead of the mid-point of management guided range of 29-33 cents (mid-point 31 cents) as well as beat the Zacks Consensus Estimate by a penny.

Balance Sheet

Marvell exited the quarter with cash, cash equivalents and short-term investments of $1.841 billion as compared with $1.732 billion in the previous quarter. The company carries no long-term debt. Cash from operating activities during the fiscal amounted to $571.1 million.

During the fiscal, Marvell repurchased stocks worth $527.6 million and paid dividend of $119.3 million to its shareholders.

Outlook

Marvell projects first-quarter fiscal 2019 revenues in the range of $585-$615 million (mid-point $600 million).

Management expects GAAP and non-GAAP gross margin to be approximately 62% and 63%, respectively. GAAP operating expenses are expected to lie between $250 million and $260 million, while non-GAAP operating expenses are estimated to be approximately $215 million.

The company anticipates non-GAAP earnings per share in the band of 29-33 cents (mid-point 31 cents). On GAAP basis, earnings are projected to come between 22 cents and 26 cents per share.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates. There have been six revisions higher for the current quarter.

Marvell Technology Group Ltd. Price and Consensus

Marvell Technology Group Ltd. Price and Consensus | Marvell Technology Group Ltd. Quote

VGM Scores

At this time, MRVL has an average Growth Score of C, though it is lagging a bit on the momentum front with a D. Following the exact same course, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

The company's stock is suitable solely for growth based on our styles scores.

Outlook

Estimates have been trending upward for the stock and the magnitude of these revisions looks promising. Notably, MRVL has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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