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Analog Devices (ADI) Tops Q1 Earnings and Revenue Estimates

Zacks

Analog Devices Inc. ADI reported first-quarter fiscal 2017 adjusted earnings of 94 cents per share, which beat the Zacks Consensus Estimate of 73 cents. Adjusted earnings per share exclude one-time items but include stock-based compensation expenses.

Shares of Analog Devices have outperformed the Zacks Semiconductor-Analog and Mixed industry in the last three months. The stock returned 14.7%, while the industry gained 9.6%.

The better-than-expected results were driven by strength across all the markets – industrial, automotive, consumer and communications, and the company’s increased focus on innovation and operational execution.


At the call, management sounded upbeat on the company’s progress related to the closure of the acquisition of Linear Technology. The company expects the deal to be completed by the end of its second fiscal quarter.

It is expected to make Analog Devices an industry leader across a huge range of products, customer breadth and scale. The deal will also help it to grow significantly in industrial, automotive, and communications infrastructure markets.

While its investments are aimed at strengthening the product line and countering increasing competition, the policy of returning cash through dividends and share buybacks will ensure investor loyalty.

Let’s delve deeper into the numbers.

Revenues

Analog Devices generated revenues of $984.4 million, down 1.9% sequentially but up 27.9% year over year. The year-over-year increase was attributable to improved performance across all the markets.

Moreover, revenues exceeded the company’s guidance range of $840 million to $900 million. It also surpassed the Zacks Consensus Estimate of $871.9 million.

Revenues by End Markets

The Industrial market generated 41% of Analog Devices’ total revenue (up 1.3% sequentially and 15.3% year over year). This represents a diversified market for the company, including industrial automation, instrumentation, energy, defense and health care segments.

Communications generated 18% of total revenue, up 1.3% sequentially and 3.5% year over year.

The Automotive segment generated around 14% of Analog Devices’ first quarter revenues, down 2.1% sequentially but up 9.5% year over year.

The Consumer segment, which Analog Devices clubs with its computing and handset businesses, decreased 8% sequentially but was up a massive 113.9% year over year. It accounted for 27% of total revenue.

Margins

Pro-forma gross margin was 66.1%, down 54 basis points (bps) sequentially but up 388 bps year over year. The year-over-year improvement was primarily backed by lower inventory reserves and higher utilization rates.

Analog Devices reported adjusted operating expenses of $306.5 million, up 7% sequentially and 15.8% year over year. Pro-forma operating margin of 35% was down 313 bps sequentially but up 715 bps year over year.

Net Profit

On a GAAP basis, Analog Devices recorded a net profit of $217.1 million or 69 cents per share compared with $164.5 million or 52 cents in the year-ago quarter.

The company generated adjusted net profit of $295 million compared with $180.1 million in the first quarter of fiscal 2016. Pro-forma earnings per share came in at 94 cents compared with 57 cents in the year-ago quarter.

Balance Sheet

Analog Devices exited the first quarter with cash and short-term investments of approximately $6.3 billion, up from $2.2 billion in the prior quarter. Accounts receivables were $472.5 million, down from $477.6 million in the previous quarter.

Long-term debt was approximately $3.8 billion, resulting in a net cash position of $2.5 billion.

Net cash flow from operations was around $314.4 million. Analog Devices spent $3.1 million on share repurchases and $129.7 million on cash dividends during the first quarter.

Analog Devices, Inc. Price, Consensus and EPS Surprise

Guidance

For the second quarter of fiscal 2017, management expects revenues in a range of $870 million to $950 million. The Zacks Consensus Estimate is pegged at $877.2 million. On a non-GAAP basis, the company estimates gross margin of approximately 66.5% to 67.0%. Operating expenses are expected to be down 3% to up 1%. The company expects interest and other expense of approximately $30 million, tax rate of approximately 8% and earnings per share in a range of 74–86 cents. The Zacks Consensus Estimate is pegged at 77 cents.

Zacks Rank & Other Picks

Currently, Analog Devices has a Zacks Rank #2 (Buy). Other stocks worth considering in the broader technology sector include Xcerra Corporation XCRA, STMicroelectronics N.V. STM and Texas Instruments Incorporated TXN, each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

For the current year, the estimates for Xcerra stayed unchanged while the same for STMicroelectronics and Texas Instruments went up 15.3% and 6.7%, respectively in the past 30 days.

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