Why Is ON Semiconductor Corp. (ON) Down 2.3% Since Last Earnings Report?
A month has gone by since the last earnings report for ON Semiconductor Corp. (ON). Shares have lost about 2.3% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is ON Semiconductor Corp. due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
ON Semiconductor Q2 Earnings & Revenues Beat Estimates
ON Semiconductor reported second-quarter 2021 non-GAAP earnings of 63 cents per share, which outpaced the Zacks Consensus Estimate by 28.57%. The company had reported earnings of 12 cents per share in the year-ago quarter.
Revenues of $1.67 billion beat the Zacks Consensus Estimate by 2.95% and improved 37.6% on a year-over-year basis. The top line benefited from broad-based strength across industrial, computing, consumer and automotive end-markets.
Top Line Details
Power Solutions Group or PSG revenues of $846.6 million (50.7% of revenues) surged 37% year over year, courtesy of strength in automotive and industrial end-markets.
Advanced Solutions Group or ASG revenues of $607.6 million (36.4% of revenues) soared 42% on a year-over-year basis, driven by robust automotive and computing end-markets. Solid demand for high-end graphics cards aided computing growth
Intelligent Sensing Group or ISG revenues of $215.7 million (12.9% of revenues) improved 28.1% year over year, primarily driven by strong automotive end-market.
In terms of end-markets, Automotive (33.3% of revenues) revenues were $555.8 million, up 68.6% year over year. The company witnessed strong demand for its power and sensing product categories. ON Semiconductor continues to gain traction among electric vehicle manufacturers.
Industrial (26% of revenues) end-market (includes military, aerospace and medical) revenues increased 24.3% year over year to $433.7 million. Top-line growth benefited from strong demand for higher power modules and alternative energy applications, driven by large investments in solar installations. The company also witnessed solid year-over-year growth in imaging revenues driven by machine vision and scanning applications.
Communications (15.4% of revenues) revenues inched up 1.5% year over year to $256.9 million. Computing (15.4% of revenues) revenues surged 59.1% year over year to $257.1 million. Consumer (10% of revenues) revenues amounted to $166.5 million, up 38.3% year over year.
ON Semiconductor witnessed a solid demand environment in the second quarter, particularly for its power and sensing products, which it expects to continue in the near term. However, the company is suffering from supply constraints especially for certain products that are manufactured by its foundry partners. ON Semiconductor expects that the demand will continue to outpace supply through the first half of next year.
Operating Details
Non-GAAP gross margin of 38.4% expanded 750 basis points (bps) on a year-over-year basis. The improvement was led by favorable mix to higher margin products, improvement in utilization and focus on stringent cost control measures.
Non-GAAP operating expenses climbed 10.4% year over year to $314.2 million.
Non-GAAP operating margin expanded to 19.6% compared with the year-ago quarter’s figure of 7.4%, courtesy of higher revenue base and improvement in gross margin.
Balance Sheet & Cash Flow
As of Jul 2, 2021, ON Semiconductor had cash and cash equivalents of $1.09 billion compared with $1.04 billion as of Apr 2, 2021. The company had $1.97 billion undrawn on its revolver.
Total debt (including current portion) as of Jul 2, 2021, was $3.11 billion compared with $3.34 billion as of Apr 2, 2021.
Second quarter 2021 cash flow from operations amounted to $488 million compared with the previous quarter’s reported figure of $218.5 million.
Capital expenditures during the quarter were $104.8 million, which equate to a capital intensity of 6.3%. ON Semiconductor is spending a significant part of its capital expenditure toward enabling its 300-millimeter capability at East Fishkill fab.
Free cash flow amounted to $383.2 million compared with $141.5 million in the previous quarter.
Guidance
For third-quarter 2021, ON Semiconductor expects revenues between $1.66 billion to $1.76 billion.
Non-GAAP gross margin is projected in the range of 39-41%. Non-GAAP operating expenses are expected to be $305-$320 million.
Non-GAAP earnings are envisioned between 68 cents and 80 cents per share.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended upward during the past month. The consensus estimate has shifted 43.36% due to these changes.
VGM Scores
Currently, ON Semiconductor Corp. has a strong Growth Score of A, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise ON Semiconductor Corp. has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.
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