We use cookies to understand how you use our site and to improve your experience. This includes personalizing content and advertising. To learn more, click here. By continuing to use our site, you accept our use of cookies, revised Privacy Policy and Terms of Service.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
Texas Instruments (TXN) Earnings & Revenues Beat in Q3
Read MoreHide Full Article
Texas Instruments (TXN - Free Report) or TI reported third-quarter 2016 earnings of 94 cents that easily beat the Zacks Consensus Estimate of 86 cents.
Revenue
Texas Instruments reported revenues of $3.68 billion, which were up 12.3% sequentially (better than seasonal) and 7.2% year over year (exceeding the guidance range of $3.34 billion and $3.62 billion) and came ahead of the Zacks Consensus Estimate by 5.6%.
The automotive market was again strong in the last quarter with all five sectors inside this market, growing in double digits. The company has also seen broad-based improvement in industrial market. Communications equipment was up but personal electronics stayed even. Enterprise systems also grew.
Management has successfully steered the business into analog and embedded processing applications, which typically yield a more stable longer-lived business as well as stronger margins. The company continues to return cash to investors in the form of share repurchases and dividends.
The Analog, Embedded Processing and Other Segments generated 63%, 22% and 15% of quarterly revenues, respectively.
The Analog business grew 13.6% sequentially and 6.5% from the year-ago quarter. In the year-over-year comparison, HVAL and power management sales were weaker, offsetting stable sales in HPA and SVA.
The Embedded Processing segment, which includes the processor, microcontroller and connectivity product lines, was up 5.3% sequentially and 9.7% from last year. Connectivity is the fastest growing part with applications across diverse markets; processor growth is next (mainly coming from the auto and communications infrastructure markets) while the growth in microcontrollers is coming from the industrial market. Similar to the previous quarter, the strength was broad-based across all product lines with processors leading the growth. Management focus is on long-lived products, so that’s where the current investments are.
The Other segment, which includes DLPs, custom ASICs, calculators, royalties and some legacy wireless products was up 17.5% sequentially but down 6.7% year over year. Calculators and DLPs led the growth that was partially offset by weakness in royalties and custom ASICs.
Net product orders were $3.64 billion in the last quarter, up 6% year over year.
Margins
Texas Instruments’ gross margin of 62% was up 84 basis points (bps) sequentially and 380 bps from the year-ago quarter. The company’s gross margin has been improving consistently as more production shifts to its 300mm line (this results in a 40% cost benefit at the die level). Reducing depreciation on its fixed assets is also a contributing factor. Fab utiization remains steady and mix relatively consistent at these levels, so these factors aren't likely to remain gross margin drivers in the future.
Operating expenses of $885 million were down 0.1% sequentially but up 6.2% from the last year. Operating margin was 38%, up 383 bps sequentially and 401 bps from the year-ago quarter. All expenses increased sequentially as a percentage of sales except acquisition, restructuring/other charges that stayed flat.
The Analog, Embedded Processing and Other segments generated operating margins of 40.9%, 27.7% and 40.6%, respectively. The Analog margin expanded 320 bps sequentially, Embedded Processing expanded 270 bps with Other expanded 750 bps. Analog and Embedded and Other segment margins expanded year over year by 370 bps, 370 bps and 650 bps, respectively.
Net Income
Pro forma net income was $968 million, or a 26.3% net income margin compared with $779 million, or 23.8% in the previous quarter and $798 million, or 23.3% in the year-ago quarter.
On a GAAP basis, the company reported a net profit of 94 cents a share compared with a net profit of 77 cents in the previous quarter and a net profit of 77 cents in the comparable prior-year quarter.
Balance Sheet and Cash Flow
Cash and short-term investments balance was $3.1 billion, up $598 million during the quarter.
The company generated $1.41 billion in cash from operations, spending $139 million on capex, $500 million on share repurchases and $382 million on cash dividends.
Texas Instruments is one of the few technology companies that return a significant amount of cash to investors. Its management policy is to return cash in the form of both share repurchases and dividends. It has increased dividends 8% over the trailing 12 months, although the amount spent on share repurchases dropped 19%.
At quarter-end, TI had $3 billion in long-term debt and $634 million in short-term debt. As of Sep 30, 2016 the company’s net debt position was $474 million.
Guidance
The company provided guidance for the fourth quarter.
It expects revenues between $3.17 billion and $3.43 billion (down 10.8% sequentially at the mid-point). However the company’s revenues guidance at the mid-point is higher than the Zacks Consensus Estimate of $3.06 billion.
The annual effective tax rate and the rate to be applied for the fourth quarter is unchanged at around 30%.
Earnings for the quarter are expected to be 76 to 86 cents. The Zacks Consensus Estimate is pegged at 86 cents.
Capex target remains at 4% of revenue.
Our Take
Texas Instruments reported a better-than-expected quarter. All signs point to strengthening auto and industrial markets, which are helping the company. The communications and enterprise systems market is also improving. The personal electronics markets remains weak but TI has done well to tackle the challenge.
Internally, the company has always executed rather well. It, along with chipmaker Intel (INTC - Free Report) remains one of the few semiconductor companies that depend on internal capacity for manufacturing the bulk of its devices. Since the company usually builds out capacity well ahead of demand, it is able to make opportunistic purchases. As a result, it is able to contain capex at up to 4% of sales even while on an expansion plan.
Overall, we remain optimistic about TI’s compelling product line, the differentiation in its business and lower-cost 300mm Analog output that should drive earnings. We note that channel inventories remain very low, meaning that demand is likely to remain strong.
Texas Instruments also continues to prudently invest its R&D dollars into several high-margin, high-growth areas of the analog and embedded processing markets. This is gradually increasing its exposure to the industrial and automotive markets and increasing dollar content at customers, while reducing its exposure to the volatile consumer/computing markets.
Some better-ranked stocks in the wider technology sector include Veeco Instruments Inc. (VECO - Free Report) and Boyd Gaming Corporation (BYD - Free Report) . While Veeco sports a Zacks Rank #1 (Strong Buy) and an Earnings ESP of +17.86%, Boyd Gaming has a Zacks Rank #2 (Buy) and an Earnings ESP of +16.67%.
Confidential from Zacks
Beyond this Analyst Blog, would you like to see Zacks' best recommendations that are not available to the public? Our Executive VP, Steve Reitmeister, knows when key trades are about to be triggered and which of our experts has the hottest hand. Click to see them now>>
Unique Zacks Analysis of Your Chosen Ticker
Pick one free report - opportunity may be withdrawn at any time
Image: Bigstock
Texas Instruments (TXN) Earnings & Revenues Beat in Q3
Texas Instruments (TXN - Free Report) or TI reported third-quarter 2016 earnings of 94 cents that easily beat the Zacks Consensus Estimate of 86 cents.
Revenue
Texas Instruments reported revenues of $3.68 billion, which were up 12.3% sequentially (better than seasonal) and 7.2% year over year (exceeding the guidance range of $3.34 billion and $3.62 billion) and came ahead of the Zacks Consensus Estimate by 5.6%.
The automotive market was again strong in the last quarter with all five sectors inside this market, growing in double digits. The company has also seen broad-based improvement in industrial market. Communications equipment was up but personal electronics stayed even. Enterprise systems also grew.
Management has successfully steered the business into analog and embedded processing applications, which typically yield a more stable longer-lived business as well as stronger margins. The company continues to return cash to investors in the form of share repurchases and dividends.
TEXAS INSTRS Price, Consensus and EPS Surprise
TEXAS INSTRS Price, Consensus and EPS Surprise | TEXAS INSTRS Quote
Segment Revenue
The Analog, Embedded Processing and Other Segments generated 63%, 22% and 15% of quarterly revenues, respectively.
The Analog business grew 13.6% sequentially and 6.5% from the year-ago quarter. In the year-over-year comparison, HVAL and power management sales were weaker, offsetting stable sales in HPA and SVA.
The Embedded Processing segment, which includes the processor, microcontroller and connectivity product lines, was up 5.3% sequentially and 9.7% from last year. Connectivity is the fastest growing part with applications across diverse markets; processor growth is next (mainly coming from the auto and communications infrastructure markets) while the growth in microcontrollers is coming from the industrial market. Similar to the previous quarter, the strength was broad-based across all product lines with processors leading the growth. Management focus is on long-lived products, so that’s where the current investments are.
The Other segment, which includes DLPs, custom ASICs, calculators, royalties and some legacy wireless products was up 17.5% sequentially but down 6.7% year over year. Calculators and DLPs led the growth that was partially offset by weakness in royalties and custom ASICs.
Net product orders were $3.64 billion in the last quarter, up 6% year over year.
Margins
Texas Instruments’ gross margin of 62% was up 84 basis points (bps) sequentially and 380 bps from the year-ago quarter. The company’s gross margin has been improving consistently as more production shifts to its 300mm line (this results in a 40% cost benefit at the die level). Reducing depreciation on its fixed assets is also a contributing factor. Fab utiization remains steady and mix relatively consistent at these levels, so these factors aren't likely to remain gross margin drivers in the future.
Operating expenses of $885 million were down 0.1% sequentially but up 6.2% from the last year. Operating margin was 38%, up 383 bps sequentially and 401 bps from the year-ago quarter. All expenses increased sequentially as a percentage of sales except acquisition, restructuring/other charges that stayed flat.
The Analog, Embedded Processing and Other segments generated operating margins of 40.9%, 27.7% and 40.6%, respectively. The Analog margin expanded 320 bps sequentially, Embedded Processing expanded 270 bps with Other expanded 750 bps. Analog and Embedded and Other segment margins expanded year over year by 370 bps, 370 bps and 650 bps, respectively.
Net Income
Pro forma net income was $968 million, or a 26.3% net income margin compared with $779 million, or 23.8% in the previous quarter and $798 million, or 23.3% in the year-ago quarter.
On a GAAP basis, the company reported a net profit of 94 cents a share compared with a net profit of 77 cents in the previous quarter and a net profit of 77 cents in the comparable prior-year quarter.
Balance Sheet and Cash Flow
Cash and short-term investments balance was $3.1 billion, up $598 million during the quarter.
The company generated $1.41 billion in cash from operations, spending $139 million on capex, $500 million on share repurchases and $382 million on cash dividends.
Texas Instruments is one of the few technology companies that return a significant amount of cash to investors. Its management policy is to return cash in the form of both share repurchases and dividends. It has increased dividends 8% over the trailing 12 months, although the amount spent on share repurchases dropped 19%.
At quarter-end, TI had $3 billion in long-term debt and $634 million in short-term debt. As of Sep 30, 2016 the company’s net debt position was $474 million.
Guidance
The company provided guidance for the fourth quarter.
It expects revenues between $3.17 billion and $3.43 billion (down 10.8% sequentially at the mid-point). However the company’s revenues guidance at the mid-point is higher than the Zacks Consensus Estimate of $3.06 billion.
The annual effective tax rate and the rate to be applied for the fourth quarter is unchanged at around 30%.
Earnings for the quarter are expected to be 76 to 86 cents. The Zacks Consensus Estimate is pegged at 86 cents.
Capex target remains at 4% of revenue.
Our Take
Texas Instruments reported a better-than-expected quarter. All signs point to strengthening auto and industrial markets, which are helping the company. The communications and enterprise systems market is also improving. The personal electronics markets remains weak but TI has done well to tackle the challenge.
Internally, the company has always executed rather well. It, along with chipmaker Intel (INTC - Free Report) remains one of the few semiconductor companies that depend on internal capacity for manufacturing the bulk of its devices. Since the company usually builds out capacity well ahead of demand, it is able to make opportunistic purchases. As a result, it is able to contain capex at up to 4% of sales even while on an expansion plan.
Overall, we remain optimistic about TI’s compelling product line, the differentiation in its business and lower-cost 300mm Analog output that should drive earnings. We note that channel inventories remain very low, meaning that demand is likely to remain strong.
Texas Instruments also continues to prudently invest its R&D dollars into several high-margin, high-growth areas of the analog and embedded processing markets. This is gradually increasing its exposure to the industrial and automotive markets and increasing dollar content at customers, while reducing its exposure to the volatile consumer/computing markets.
Zacks Rank & Stocks to Consider
Texas Instruments carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank stocks here.
Some better-ranked stocks in the wider technology sector include Veeco Instruments Inc. (VECO - Free Report) and Boyd Gaming Corporation (BYD - Free Report) . While Veeco sports a Zacks Rank #1 (Strong Buy) and an Earnings ESP of +17.86%, Boyd Gaming has a Zacks Rank #2 (Buy) and an Earnings ESP of +16.67%.
Confidential from Zacks
Beyond this Analyst Blog, would you like to see Zacks' best recommendations that are not available to the public? Our Executive VP, Steve Reitmeister, knows when key trades are about to be triggered and which of our experts has the hottest hand. Click to see them now>>