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NXP (NXPI) Q4 Earnings Beat Estimates, Q1 View Disappoints

Zacks

Shares of NXP Semiconductors N.V. NXPI have lost 23.4% in the past year, underperforming the industry’s decline of 1.4%.

The company is hurt by weaknesses plaguing the semiconductor market recently. This is further evident from the recently reported quarterly results and its guidance for first-quarter 2019.

The company reported fourth-quarter adjusted earnings of $2.30 per share, which beat the Zacks Consensus Estimate of $2.09. The figure, however, decreased 28.3% from the year-ago quarter.

NXP Semiconductors’ quarterly revenues of $2.40 billion beat the consensus estimate of $2.39 billion. However, on a year-over-year basis, it fell 2%. Weakened demand in communication infrastructure and other end market relating to a decline in the company’s digital networking business negatively impacted revenues.

NXP Semiconductors witnessed a rapid decline in automotive and industrial markets in China toward the later part of the quarter. This fall is expected to be an overhang on first-quarter 2019 results as well.

For the first quarter, the company estimates sales in the range of $2.02-$2.16 billion, representing year-over-year decline of 8% at mid-point of $2.09 billion. The Zacks Consensus Estimate for revenues is pegged at $2.33 billion.

However, the company’s order rates indicate better revenues in the second quarter of 2019 than the first quarter. With global GDP anticipated to remain up to 3% in 2019, it is likely that the second-half of the year will be better for the global semiconductor market.

Quarter Details

NXP Semiconductor’s Automotive revenues came at $1.11 billion, up 1% year over year. Double digit increase in ADAS and i.MX was a positive.

Industrial IoT revenues decreased 7% to $435 million. Weaker distribution trend in China was the primary factor behind the decline.

Mobile revenues were $344 million, down 8% due to the ramp up of Reliance in India in the second-half 2017, which made year-to-year comparison tough. However, if compared with the third quarter of 2018, there was an improvement in demand for mobile transaction products in the premium smartphone market.

Revenues from Communications Infrastructure and Other were $493 million, up 3% year over year. Strength in demand for RF power solutions was a positive. However, decline in the digital networking business was an overhang.

Another headwind for NXP Semiconductors was the WLTP emissions testing bottlenecks that were added in the European automotive market in the third quarter. These bottlenecks are not expected to clear before the first quarter of 2019 ends.

Moreover, issues surrounding Brexit is creating an uncertain environment in the automotive market.

Margins

NXP Semiconductors reported non-GAAP gross profit of $1.8 billion, up 4% year over year. However, gross margin contracted 110 basis points (bps) to 53.1% as a result of lower revenues.

Adjusted operating income decreased 4.2% from the year-earlier quarter to $731 million. Adjusted operating margin came in at 30.4%, contracting 70 bps.

Balance Sheet and Cash Flow

NXP Semiconductors exited the fourth quarter with cash and cash equivalents of $2.8 billion compared with $1.9 billion recorded in the previous quarter.

Long-term debt was $6.2 billion compared with $5.4 billion in the third quarter.

During the quarter, the company returned approximately $500 million to shareholders in the form of $424 million worth of repurchased shares and $74 million worth of dividend.

Guidance

Non-GAAP gross profit is anticipated to range within $1.04-$1.15 billion, and non-GAAP gross margin is expected between 51.6% and 53%.

Non-GAAP operating income is likely to be within $505-$583 million, and operating margin is expected to be between 25% and 27%.

NXP Semiconductors N.V. Price, Consensus and EPS Surprise

NXP Semiconductors N.V. Price, Consensus and EPS Surprise | NXP Semiconductors N.V. Quote


Zacks Rank and Stocks to Consider

NXP Semiconductors currently carries a Zacks Rank #4 (Sell).

Some better-ranked stocks in the same sector are Jabil, Inc. JBL, Fortinet, Inc. FTNT and Twilio Inc. TWLO. All the three stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings growth rate for Jabil, Fortinet and Twilio is projected to be 12%, 16.75% and 9%, respectively.

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