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Linear Technology (LLTC) Misses on Q1 Earnings, Revenues

Zacks

Linear Technology Corp. LLTC reported first-quarter fiscal 2017 earnings of 53 cents, which missed the Zacks Consensus Estimate by a penny. Earnings decreased 1.9% sequentially but increased 15.2% year over year.

In Jul 2016, Linear had announced that Analog Devices, Inc. ADI has agreed to acquire its business in a cash and stock deal worth $30 billion. Per the agreement, Linear shareholders will receive $46.00 in cash for each share and an additional 0.2321 of Analog Devices common stock for each Linear share.

In the reported quarter, Linear Technology’s stockholders approved the merger agreement under which Analog Devices will acquire Linear Technology. The deal is expected to be completed by the end of the first half of calendar year 2017.

The acquisition is expected to be accretive to non-GAAP earnings and cash flow going forward. Also, the companies expect to realize $150 million in annual cost synergies in the first 18 months following the closure. The merger of these two companies will create an analog industry leader across a huge range of products, customer breadth and scale. The deal will expand Analog Devices’ total addressable market to $14 billion from $8 billion, allowing it to tap the phenomenal demand in some of the most attractive markets, namely industrial, automotive and communications infrastructure markets.

A quick look at the numbers:

Revenues

Linear reported revenues of $373.9 million, up 9.4% year over year but flat sequentially. The figures were slightly below the Zacks Consensus Estimate of $379.0 million.

Margins

Pro forma gross margin was 76.0%, down 41 basis points (bps) sequentially but up 90 bps year over year.

Operating expenses of $112.9 million decreased 0.7% sequentially but increased 5.8% year over year. As a percentage of sales, research & development and selling, general & administrative expenses increased from the year-ago quarter. As a result, operating margin of 45.2% was down 71 bps sequentially but up 138 bps year over year.

GAAP net income was $115.1 million or 47 cents per share compared with $132.4 million or 54 cents in the previous quarter and $112.0 million or 46 cents a year ago. Excluding the merger- related charges, pro-forma earnings were $130.2 million versus $132.4 million in the previous quarter and $112.0 million in the year-ago quarter.

Balance Sheet

Linear exited the fiscal first quarter with cash, cash equivalents and marketable securities of approximately $1.52 billion compared with $1.45 billion in the prior quarter. Account receivables were $162.4 million, up from $157.5 million in the fiscal fourth quarter.

Linear generated $167.8 million from cash for operations and spent $8.3 million on capital expenditures. The company repurchased shares worth $10.8 million and paid $78.6 million as dividend.

Guidance

For the fiscal second quarter of 2017, management expects revenue growth of 7% to 8.5% on a year-over-year basis. Analysts polled by Zacks expect revenues of $366.7 million.

Conclusion

Linear Technology reported a weak quarter with both earnings and revenues missing our expectations.

The company’s business is well diversified among core markets, including industrial, automotive and communications infrastructure. It has an impressive record of returning cash to shareholders through dividends and share buybacks, which should increase investors’ confidence, in our view.

LINEAR TEC CORP Price, Consensus and EPS Surprise


LINEAR TEC CORP Price, Consensus and EPS Surprise | LINEAR TEC CORP Quote

Zacks Rank

Currently, Linear Technology carries a Zacks Rank #3 (Hold). Stocks worth considering in the industry include Intel Corp. INTC and NVIDIA Corporation NVDA carrying a Zacks Rank 1 (Strong Buy) each. You can see the complete list of today’s Zacks #1 Rank stocks here.

Intel witnessed a 1.23% gain in its last day’s stock price. On average, the company delivered a positive earnings surprise 11.86% in the trailing four quarters.

NVIDIA Corporation delivered a positive earnings surprise of 28.53%, on average, in the trailing four quarters.

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