Why Is Semtech (SMTC) Down 7% Since Last Earnings Report?
A month has gone by since the last earnings report for Semtech (SMTC). Shares have lost about 7% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Semtech 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.
Semtech Q2 Earnings Beat Estimates
Semtech Corporation’s second-quarter fiscal 2024 non-GAAP earnings of 11 cents per share beat the Zacks Consensus Estimate of 2 cents per share. However, the metric decreased by 87.3% year over year.
Net sales of $238.4 million outpaced the Zacks Consensus Estimate of $237.1 million. The figure increased by 13.9% from the prior-year quarter’s level.
Top-line growth was driven by the company’s strength in IoT System Products Group. Solid momentum across the industrial end-market contributed well.
Softness in Signal Integrity and Advanced Protection and Sensing product lines were concerns. Weak momentum across infrastructure and consumer markets was a headwind.
Revenues by End Market
Sales from the infrastructure market were $42.4 million (18% of net sales), which exhibited a decline of 49.9% year over year.
Sales from the industrial market were $161.99 million (68% of net sales), up 93.5% from the prior-year period’s level.
Sales from the high-end consumer market were $34.02 million (14% of net sales), declining 17% year over year.
Revenues by Product Lines
Signal Integrity (20% of net sales) sales were $46.51 million in the reported quarter, down 46.8% year over year. The figure came below the consensus mark of $57 million.
Advanced Sensing and Protection (20% of net sales) sales were $48.52 million, down 25.7% from the prior-year quarter. The figure came below the consensus mark of $49.08 million.
IoT System (50% of net sales) sales were $119.5 million, increasing 110.9% on a year-over-year basis. The figure surpassed the Zacks Consensus Estimate of $115 million.
IoT Connected Services (10% of net sales) sales were $23.9 million in the reported quarter. The figure surpassed the Zacks Consensus Estimate of $10.9 million.
Operating Results
Non-GAAP gross margin of 49.6% contracted from 65.2% reported in the year-ago quarter.
Adjusted selling, general and administrative expenses for the fiscal second quarter increased 20.9% to $42.8 million from the last fiscal year’s quarterly number. Adjusted product development and engineering expenses increased 17.5% from the year-ago quarter to $42.95 million.
The non-GAAP operating margin of 13.6% contracted significantly from 30.8% reported in the last fiscal year quarter.
Balance Sheet and Cash Flow
As of Jul 30, 2023, cash and cash equivalents were $147.9 million, down from $164.2 million as of Apr 30, 2023.
Account receivables for fiscal second-quarter 2024 were $159.1 million, up from $145.4 million in first-quarter fiscal 2023.
Long-term debt was $1.33 billion compared with $1.34 billion in the previous fiscal quarter.
In the reported fiscal quarter, the company used $12 million of cash in operations compared with $89.9 million in the previous quarter. Free cash flow in the fiscal second quarter was an outflow of $18.9 million.
Guidance
For third-quarter fiscal 2024, management expects net sales of $190-$210 million.
The non-GAAP gross margin is expected to be 47-49%. Management projects SG&A expenses of $36-$38 million and research and development costs of $45-$47 million on a non-GAAP basis.
The non-GAAP-based loss is expected in the band of 22-9 cents per share.
How Have Estimates Been Moving Since Then?
It turns out, estimates revision have trended downward during the past month.
The consensus estimate has shifted -1215% due to these changes.
VGM Scores
Currently, Semtech has a poor Growth Score of F, a grade with the same score on the momentum front. Following the exact same course, the stock was allocated a grade of F on the value side, putting it in the bottom 20% quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Semtech has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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