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International Rectifier Corp. (IRF - Snapshot Report) reported third-quarter 2013 loss per share of 29 cents, narrower than the Zacks Consensus Estimate of 40 cents loss per share.

Revenues

The company reported revenues of $224.3 million, down 9.6% year over year and at the lower end of management’s guidance of $220–$235 million due to weak demand across Energy saving products, Enterprise power and HiRel business segments, partially offset by strength in other segments.

Segment wise, Power management devices revenues increased 52.7% year over year to $85.2 million; Energy saving products revenues decreased 24.4% to $43.6 million; Enterprise power revenues decreased 36.4% to $20.5 million; Automotive products revenues increased 8.0% to $31.1 million while HiRel revenues dropped 10.5% to $43.6 million.

Intellectual property revenues were $0.30 million in the quarter, down 31.8% year over year.

Margins

Reported gross margin for the quarter was 24.3%, up 240 basis points (bps) sequentially but down 550 bps from the year-ago quarter. The sequential increase was due to better mix and manufacturing efficiencies in the quarter.

Operating expenses (SG&A and R&D) of $71.9 million decreased 14.8% year over year due to solid expense management. Though selling, general and administrative (SG&A) and research and development (R&D) expenses decreased as a percentage of sales from the year-ago quarter, the reported operating loss of 8.9% increased significantly from the year-ago quarter operating loss of 2.9%.

The quarter’s GAAP net loss was $21.2 million or loss per share of 31 cents, compared with a net loss of $2.5 million or loss of 4 cents in the comparable quarter last year. Excluding special items, non-GAAP net loss was $19.8 million or loss per share of 29 cents compared with a net loss of $14.9 million or loss of 22 cents a share in the year-ago quarter.

Balance Sheet

The company has a cash and cash equivalents, restricted cash and short-term investments balance of $402.7 million, up from $377.4 million in the prior quarter. Trade receivables were $135.0 million, up from $134.0 million in the prior quarter.

Cash flow from operations was $33.2 million, down from $41.9 million in the prior quarter. Capex was $12.9 million versus $26.1 million in the prior quarter.

Guidance

For the fourth quarter of 2013, International Rectifier expects total revenue in the range of $255–$265 million, representing a sequential increase of 14.3% at the mid-point. Gross margins are expected in the range of 28% to 30%. Research and development expense is likely to be $32 million and selling, general and administrative expenses are expected to remain flat at about $47 million. The company expects restructuring and other charges of $1 to $2 million, resulting from the resizing of manufacturing facilities and other cost reduction efforts. Net other expense is expected to be about $1 million whereas tax amount is likely to be $4 million.

For the fourth quarter, capital expenditure is expected to be about $15 million.

Conclusion

International Rectifier designs, manufactures, and markets analog integrated circuits (ICs) and power components, focused on power management applications. Though the company reported a disappointing quarter, the loss incurred was narrower than expected.

In the quarter, the company performed poorly with both its revenues and gross margins decreasing from the year-ago quarter. However, the company’s gross margins increased sequentially and its cost reduction initiative seems to be paying off. Management’s also provided a modest fourth 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 #3 (Hold). Investors should look out for some other stocks with a Zacks Rank of #1, #2 or #3 and positive ESP (Read: Zacks Earnings ESP: A Better Method).

Applied Materials, Inc. (AMAT - Analyst Report), Earnings ESP of +7.69% and Zacks Rank #2 (Buy)

Fiserv Inc. (FISV - Analyst Report), with an ESP of +3.03% and a Zacks Rank #2 (Buy)

Amazon.com (AMZN - Analyst Report), with an ESP of +14.3% and a Zacks Rank #3 (Hold)
 

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