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Cirrus Logic Inc. (CRUS - Snapshot Report) was down 6.7% in after-hours trading on Wednesday after it reported first-quarter fiscal 2015 results. Though adjusted earnings (excluding amortization and other one-time items but including stock-based compensation) of 28 cents surpassed the Zacks Consensus Estimate of 17 cents, it declined 40.6% on a year-over-year basis.

Share price declined primarily due to year-over-year decrease in both earnings and revenues. Moreover, a tepid second quarter revenue guidance led to the downside.

Quarter Details

Total revenue for the first quarter of 2015 declined 1.6% from the year-ago quarter to $152.6 million. However, it managed to beat the Zacks Consensus Estimate of $146.0 million. The year-over-year decline was primarily due to lower revenues across its business segments.

As per revenue segments, Audio Product revenues declined 1.7% year over year to $141.2 million, while Energy product revenues were down 0.5% year over year to $11.4 million.

It is worth noting that the company witnessed significant expansion in the custom and general market product portfolios, which include portable audio and LED lighting.

During the quarter, Cirrus Logic agreed to buy Wolfson Microelectronics plc for nearly $467.0 million. This acquisition provides Cirrus Logic the platform to build its audio signal processing components.

Adjusted gross margin in the quarter was 49.4% versus 51.2% in the year-ago quarter. Gross margin declined primarily due to lower revenue base.

Higher-than-expected operating expenses (up 19.5% year over year) led to a decline in operating margins. Moreover, as a percentage of revenues, operating expenses increased 661 basis points from the year-ago quarter to 37.4%, thereby impacting margins. Adjusted operating margin (excluding amortization and other one-time items but including stock-based compensation) came in at 12.0%, down from 20.5% in the year-ago quarter.
 

 

Adjusted net income (excluding amortization and other one-time items but including stock-based compensation) came in at $18.0 million or 28 cents per share compared with $31.1 million or 47 cents in the year-ago quarter.

Cirrus exited the quarter with cash and marketable securities of $343.7 million versus $295.3million in the previous quarter. The company has no long-term debt.

Outlook

For the second quarter of fiscal 2015, the company expects revenues in the range of $175.0 million to $195.0 million (mid-point $185.0 million). The Zacks Consensus Estimate is pegged at $186.0 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 $58.0 million and $62.0 million.

Our Take

Although Cirrus Logic’s first quarter earnings and revenues beat the Zacks Consensus Estimate, the year-over-year comparisons remained dismal. Margins were impacted due to higher-than-expected operating expenses. Moreover, the company provided a tepid second-quarter revenue 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) and STMicroelectronics (STM - Snapshot Report), which remains a headwind.

Cirrus Logic carries a Zacks Rank #4 (Sell). A better-ranked stock worth considering in the technology sector is NVIDIA Corp. (NVDA - Analyst Report), which carries a Zacks Rank #1 (Strong Buy).
 

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