A month has gone by since the last earnings report for Texas Instruments (TXN). Shares have added about 4.9% in that time frame, underperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Texas Instruments due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Texas Instruments Beats on Q1 Earnings
Texas Instruments reported first-quarter 2020 earnings of $1.24 per share, which surpassed the Zacks Consensus Estimate by 22.8%. The bottom line was also above management’s guided range of 96 cents to $1.14 per share.
Notably, the reported figure declined 1.6% year over year but surged 10.7% sequentially.
The company reported revenues of $3.33 billion, which beat the Zacks Consensus Estimate by 4.6%. The top line also came within management’s guided range of $3.12-$3.38 billion.
However, the figure declined 7% from the year-ago quarter and 0.6% from the previous quarter.
Sluggishness in the company's Analog and Embedded Processing segments, and end-market softness especially in the automotive space impacted the top line negatively.
Further, underperformance of the Chinese factories as a result of coronavirus outbreak remained a woe.
Nevertheless, the company witnessed strong demand in March, which continued till early April as a result of customers’ apprehensions regarding procurement of supplies during the coronavirus-induced supply chain disruptions.
However, Texas Instruments expects sluggish customer demand in the near term as a result of COVID-19-induced recession.
Nevertheless, the company’s strong investments in new growth avenues and research and development activities remain positive.
Moreover, the company remains confident on its portfolio of long-lived products and efficient manufacturing strategies. 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 mid-single digits in the automotive market on year-over-year basis due to sluggish demand as a result of factory shutdowns to curb the spread of the coronavirus.
Further, revenues in the communications equipment space decreased 50% from the year-ago quarter.
Although PC revenues improved low double digits year over year, mobile phones revenues fell low double digits, which can primarily be attributed to decline in revenues in the personal electronics market by mid-single digits.
Nevertheless, Texas Instrument’s revenues were up mid-single digits year over year in the industrial market.
Further, it experienced solid data center demand that contributed significantly to its performance in the enterprise systems space where revenues surged double digits from the year-ago quarter.
Segments in Detail
Analog: The company generated $2.46 billion from this segment (73.9% of total revenues), which decreased 2% from the year-ago quarter. Although the company witnessed growth in power revenues, weak performance of high-volume and signal chain product lines led to year-over-year decline in the segment’s top line.
Embedded Processing: This segment generated $653 million revenues (19.6% of total revenues), down 18% year over year. This was primarily owing to weak performance of processors and connected microcontrollers.
Other: Revenues in this segment were $216 million (6.5% of total revenues). The figure was down 23% from the year-ago quarter.
Texas Instruments’ gross margin of 62.7 contracted 20 basis points (bps) from the year-ago quarter.
Selling, general and administrative (SG&A) expenses expanded 100 bps year over year to $417 million in the reported quarter. Further, research and development expenses expanded 50 bps from the year-ago quarter to $377 million.
Operating margin was 37.4%, contracting 100 bps from the prior-year quarter.
Balance Sheet and Cash Flow
As of Mar 31, 2020, cash and short-term investments balance came in $4.7 billion, which decreased from $5.4 billion as of Dec 31, 2019.
At the end of the reported quarter, the company had long-term debt of $5.5 billion, up from $5.3 billion in the prior quarter.
The company generated $851 million of cash from operations, down from $1.8 billion in the previous quarter.
Capex was $161 million in the first quarter. Further, free cash flow stood at $690 million.
Additionally, Texas Instruments paid out dividends worth $841 million during the reported quarter. Further, it repurchased shares worth $1.6 billion.
Texas Instruments has widened its guided range for both revenues and earnings for the current quarter owing to COVID-19-induced recession.
For second-quarter 2020, the company expects revenues between $2.61 billion and $3.19 billion.
Earnings are expected in the range of 64 cents to $1.04 per share. The guidance includes an estimated $10 million discrete tax benefit.
How Have Estimates Been Moving Since Then?
It turns out, estimates revision have trended downward during the past month. The consensus estimate has shifted -19.29% due to these changes.
Currently, Texas Instruments has an average Growth Score of C, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Texas Instruments has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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