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International Rectifier Corp. (IRF - Snapshot Report) reported second-quarter fiscal 2014 earnings per share of 19 cents per share, in line with the Zacks Consensus Estimate.

Revenues

The company reported revenues of $270.0 million, up 0.1% sequentially and 20.6% year over year, which were also at the higher end of management’s guidance of $260 million–$270 million. Revenues increased due to strong demand across all business segments.

Segment-wise, Power management devices revenues increased 23.5% year over year to $102.9 million; Energy saving products revenues increased 28.8% to $46.6 million; Automotive products revenues increased 28.0% to $36.4 million; Enterprise power revenues increased 15.9% to $33.2 million and HiRel revenues increased 7.7% to $50.7 million.

Intellectual property revenues were $0.27 million in the quarter, up 9.2% year over year.

Margins

Reported gross margin for the quarter was 36.3%, up 100 basis points sequentially and significantly higher from the year-ago quarter. The increase was due to better mix and manufacturing efficiencies in the quarter.

Reported operating expenses of $80.2 million decreased 4.4% year over year due to solid expense management. Both selling, general and administrative, and research and development expenses decreased as a percentage of sales from the year-ago quarter. The net result was an operating profit of $17.8 million, up significantly from the year-ago quarter’s operating loss of $(34.7) million.

The quarter’s GAAP net income was $17.9 million or 25 cents per share, compared with a net loss of $32.7 million or 47 cents per share in the comparable quarter last year. Excluding special items, non-GAAP net income was $13.4 million or 19 cents per share compared with net loss of $30.3 million or loss of 44 cents a share in the year-ago quarter.

Balance Sheet

At quarter-end, the company had cash and cash equivalents, restricted cash and short-term investments balance of $504.1 million, up from $478.8 million in the prior quarter. Trade receivables were $156.7 million, up from $151.7 million in the prior quarter.

Cash flow from operations was $33.4 million, up from $24.8 million in the prior quarter. Capital expenditure (Capex) was $10.7 million versus $11.9 million in the prior quarter.

Guidance

For the third quarter of fiscal 2014, International Rectifier expects total revenue in the range of $265 million–$275 million. GAAP gross margins are expected in the range of 35.3% to 36.3% and non-GAAP gross margins in the range of 35.5% to 36.5%. Net other expense is expected to be about $1 million. Tax amount is likely to be approximately $3 million.

Conclusion

International Rectifier designs, manufactures and markets analog integrated circuits and power components, focused on power management applications. In the quarter, the company’s top- and bottom-line figures were above the year-ago quarter. The company’s gross margins increased sequentially and its cost reduction initiative seems to be paying off. Management also provided a modest third-quarter guidance reflecting slight improvement in the fundamentals.

We remain optimistic about the company’s long-term prospects. Its decision to initiate operational restructuring activities will reduce fixed cost base and hence, reduce operating expenses.

Currently, International Rectifier has a Zacks Rank #2 (Buy). Other stocks that have been performing well and are worth a look include Melco Crown Entertainment Limited (MPEL - Snapshot Report), Kemper Corporation (KMPR - Snapshot Report) and Fiserv, Inc. (FISV - Analyst Report). All these stocks carry a Zacks Rank #2.

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