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Texas Instruments (TXN) Q4 Earnings Beat, Revenues Down Y/Y

Zacks Equity Research

Texas Instruments TXN reported fourth-quarter 2019 earnings of $1.12 per share, which surpassed the Zacks Consensus Estimate by 9.8%. Further, the figure came within management’s guided range of 91 cents to $1.09 per share.

However, the reported figure declined 11.8% and 24.8% year over year and sequentially, respectively.

The company reported revenues of $3.35 billion, which beat the Zacks Consensus Estimate by 3.9%. The top line also came above management’s guided range of $3.07-$3.33 billion.

However, the figure declined 10% from the year-ago quarter and 11.2% from the previous quarter.

Persistent weakening in end-market conditions led to sluggishness in the company's Analog and Embedded Processing segments. This, in turn, hurt the top line.

Coming to the price performance, Texas Instrument has returned 30.6% over a year, compared with the industry’s growth of 36.6%.

Nevertheless, the company’s focus on innovation of product portfolio across both the segments is evident from growing research and development (R&D) spending. This continues to be a key catalyst. Further, Texas Instruments continues to increase investments in the automotive and industrial markets, which are anticipated to bode well in the long run.

Moreover, the company remains confident on portfolio strength, efficient manufacturing strategies and optimized capital allocation in growth areas.

Additionally, continuous returns to shareholders are likely to help the stock rebound in the near term.

End-Market in Detail

Texas Instrument’s revenues were down 3% to 4% from the year-ago quarter in the industrial, automotive, enterprise systems and personal electronics markets.

Further, revenues were down 50% year over year in the communications equipment market during the reported quarter. Texas Instruments witnessed weak momentum across all its major customers and geographies.

Segments in Detail

Analog: The company generated $2.497 billion from this segment (74.5% of total revenues), which decreased 5% from the year-ago quarter. This can be attributed to weak performance of high-volume, signal chain and power product lines.

Embedded Processing: This segment generated $633 million revenues (18.9% of total revenues), down 20% year over year. This was primarily owing to weak performance of processors and connected microcontrollers.

Other: Revenues in this segment were $220 million (6.6% of total revenues). The figure was down 24% from the year-ago quarter.

Texas Instruments Incorporated Price, Consensus and EPS Surprise

Texas Instruments Incorporated Price, Consensus and EPS Surprise

Texas Instruments Incorporated price-consensus-eps-surprise-chart | Texas Instruments Incorporated Quote

Operating Details

Texas Instruments’ gross margin of 62.6% contracted 210 bps from the year-ago quarter.

Although selling, general and administrative (SG&A) expenses contracted 120 bps year over year to $412 million in the reported quarter, research and development expenses expanded 70 bps from the year-ago quarter to $414 million.

Operating margin was 37.3%, contracting 350 bps from the prior-year quarter.

Balance Sheet and Cash Flow

As of Dec 31, 2019, cash and short-term investments balance came in $5.4 billion, which increased from $5.1 billion as of Sep 30, 2019.

At the end of the reported quarter, the company had long-term debt of $5.303 billion, up from $5.302 billion in the prior quarter.

The company generated $1.8 billion of cash from operations, down from $1.9 billion in the previous quarter.

Capex was $163 million in the fourth quarter. Further, free cash flow stood at $1.6 billion.

Additionally, Texas Instruments paid out dividends worth $841 million during the reported quarter. Further, it repurchased shares worth $489 million.

Guidance

For first-quarter 2020, the company expects revenues between $3.12 billion and $3.38 billion. The Zacks Consensus Estimate for revenues is pegged at $3.20 billion.

Earnings are expected in the range of 96 cents to $1.14 per share. The guidance includes an estimated $20 million discrete tax benefit. The Zacks Consensus Estimate for earnings is pegged at $1.04 per share.

Zacks Rank & Stocks to Consider

Currently, Texas Instruments carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the broader technology sector are CEVA, Inc. CEVA, Bruker Corporation BRKR and Five9, Inc. FIVN. While CEVA sports a Zacks Rank #1 (Strong Buy), Bruker and Five9 carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings growth rate for CEVA, Bruker and Five9 is currently pegged at 20%, 12.55% and 10%, respectively.

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