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A month has gone by since the last earnings report for QUALCOMM Incorporated QCOM. Shares have added about 18.2% in that time frame.
Will the recent positive trend continue leading up to its next earnings release, or is QCOM due for a pullback? 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 drivers.
Qualcomm Beats Q2 Earnings and Revenue Estimates
Qualcomm reported healthy financial results for second-quarter fiscal 2018 (ended Mar 25, 2018), supported by better-than-expected performance in semiconductor business and lower operating expenses.
The quarter’s results were negatively impacted by the ongoing dispute with Apple Inc. and its contract manufacturers (Qualcomm licensees), as well as the previously disclosed dispute with another licensee.
On a GAAP basis, quarterly net income came in at $363 million or 24 cents per share compared with $749 million or 50 cents in the year-ago quarter. Adjusted earnings per share (excluding the Qualcomm Strategic Initiatives segment and certain share-based compensation, acquisition-related items, tax items and other items) were 80 cents, comfortably surpassing the Zacks Consensus Estimate of 70 cents.
Quarterly total revenues of $5,261 million increased 13% year over year. Moreover, the figure surpassed the Zacks Consensus Estimate of $5,201 million.
Segment-wise, Qualcomm Code Division Multiple Access Technologies (“QCT”) contributed $3,897 million revenues compared with $3,676 million in the prior-year quarter. EBT (earnings before tax) margin increased to 16% compared with 13% in the prior-year quarter, backed by strong operational performance in China and growth in adjacent areas which was offset by some impact of lower modem shipments.
Qualcomm Technology Licensing (“QTL”) generated $1,260 million, down 44% year over year. EBT margin was 67% compared with 87% in the prior-year quarter. During the quarter, the company did not record any QTL revenues for royalties due on sales of Apple’s or the other licensee’s products.
Non-GAAP quarterly operating income came in at $1.3 billion compared with $2.2 billion in the year-ago quarter, due to headwinds from weaker industry conditions and litigation costs in QTL.
During the quarter, in QCT, Qualcomm shipped 187 million MSM (Mobile Station Modem) chipsets, up 4% year over year.
During the quarter Qualcomm has inked an agreement to acquire NXP Semiconductors N.V. for an estimated total cash consideration of $44 billion to be paid to NXP’s shareholders. NXP is a leader in high-performance, mixed-signal semiconductor electronics in automotive, broad-based microcontrollers, secure identification, network processing and RF power products.
The transaction is subject to receipt of regulatory clearances and other closing conditions. Qualcomm intends to fund the acquisition with cash generated from May 2017 debt offering, and cash and cash equivalents held by its foreign entities.
Cash Flow & Liquidity
During the second quarter of fiscal 2018, Qualcomm generated $516 million of cash from operating activities compared with $820 million in the prior-year quarter.
As of Mar 25, 2018, Qualcomm had $37,946 million of cash and cash equivalents compared with $7,124 million in the year-ago quarter while long-term debt totaled $19,361 million at quarter end.
During the quarter, Qualcomm returned $1 billion to stockholders. This included $845 million (57 cents per share) of cash dividends and $200 million through repurchases of 3.1 million shares of common stock. On Apr 17, the company announced a cash dividend of 62 cents per share (representing a 9% increase from prior quarterly dividend), payable Jun 20 to stockholders of record as on May 30.
Third-Quarter Fiscal 2018 Outlook
Revenues for the third quarter of fiscal 2018 are estimated in the range of $4.8-$5.6 billion. GAAP earnings per share are estimated between 35 cents and 50 cents. Non-GAAP earnings per share are projected between 65 cents and 75 cents. Qualcomm is expected to ship 185-205 million MSM chipsets in the ongoing quarter.
Going ahead, the company is expected to progress well with the execution of its $1 billion cost plan. It remains focused on closing the pending acquisition of NXP Semiconductors N.V. and is well positioned to drive the global commercialization of 5G.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates. There have been two revisions higher for the current quarter compared to four lower.
QUALCOMM Incorporated Price and Consensus
QUALCOMM Incorporated Price and Consensus | QUALCOMM Incorporated Quote
At this time, QCOM has a poor Growth Score of F. Its Momentum is doing a bit better with a D. The stock was allocated a grade of B on the value side, putting it in the top 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 value based on our styles scores.
Estimates have been broadly trending downward for the stock and the magnitude of these revisions indicates a downward shift. Interestingly, QCOM has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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