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Cirrus Logic Inc. (CRUS - Snapshot Report) reported third-quarter fiscal 2014 adjusted earnings of 79 cents per share, surpassing the Zacks Consensus Estimate of 68 cents. Earnings declined from $1.55 per share reported in the year-ago quarter.


Total revenue for the third quarter of 2014 declined 29.4% from the year-ago quarter to $218.9 million. However, it managed to beat the Zacks Consensus Estimate of $212.0 million. The year over decline was primarily due to lower revenues from Audio products.

During the quarter, the company witnessed significant expansion in the custom and general market product portfolios, which include portable audio and LED lighting.

As per revenue segments, Audio Product revenues declined 31.2% year over year to $206.4 million, while Energy product revenues were up 23.4% year over year to $12.5 million.

Operating Results

Adjusted gross margin in the quarter was 47.4% versus 50.9% in the year-ago quarter. Gross margin declined primarily due to lower revenue base.

Higher-than-expected operating expenses (up 4.3% year over year) led to a decline in operating margins. Moreover, as a percentage of revenues, operating expenses increased 750 basis points, thereby impacting margins. Adjusted operating margin came in at 24.3%, down from 35.3% in the year-ago quarter.

Adjusted net income (excluding amortization of acquisition-related intangible assets and all one-time items but including stock-based compensation expense) came in at $52.1 million or 79 cents per share compared with $106.8 million or $1.55 per share in the year-ago quarter.

Balance Sheet

Cirrus exited the quarter with cash and marketable securities of $290.5 million versus $268.3 million in the previous quarter. The company has no long-term debt.


For the fourth quarter of fiscal 2014, the company expects revenues in the range of $130.0 million to $150.0 million, down sequentially. The Zacks Consensus Estimate is pegged at $175.0 million. Apart from this, gross margin is expected between 47.0% and 49.0%, while combined research & development (R&D) and selling, general & administrative (SG&A) expenses are expected to range between $51.0 million and $55.0 million.

Our Take

Although Cirrus Logic’s top and bottom line beat the Zacks Consensus Estimate in the third quarter, yet year over year comparisons remained dismal. Margins were impacted due to higher-than-expected operating expenses. Moreover, the company provided a tepid fourth-quarter guidance.

Nonetheless, continued investments in the audio segment are expected to positively impact the company in the long run. Additionally, synergies from acquisitions and expansion in the LED market continue to drive growth.

We remain cautious about the company as the current global economic downturn might affect its business potential, going forward. Moreover, the company faces competition from the likes of Texas Instruments Inc. (TXN - Analyst Report), STMicroelectronics (STM - Snapshot Report) and ON Semiconductor (ONNN - Analyst Report).

Cirrus Logic carries a Zacks Rank #1 (Strong Buy).


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