A month has gone by since the last earnings report for Microchip Technology (MCHP - Free Report) . Shares have added about 16.4% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Microchip Tech due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Microchip Q1 Earnings & Revenues Top Estimates
Microchip Technology Incorporated reported first-quarter fiscal 2021 non-GAAP earnings of $1.56 per share, beating the Zacks Consensus Estimate by 9.1%. Moreover, the bottom line improved 10.6% on a year-over-year basis.
Net sales declined 1% from the year-ago quarter to $1.31 billion. However, the top line surpassed the Zacks Consensus Estimate by 2.2%.
Revenues declined 1.3% sequentially, led by coronavirus crisis-induced broad-based macroeconomic weakness across automotive and industrial end-markets. However, strength in demand across computing and data center, and medical end-markets was a positive.
Quarter in Detail
In terms of product line, microcontroller business (54.9% of net sales) declined 1.3% sequentially to $716.4 million. Nevertheless, management noted that the decline was lower than anticipated.
During the reported quarter, Microchip rolled out Adaptec SmartRAID 3100E RAID adapters that are designed to provide reliable hardware RAID protection for customer data in cost-sensitive end applications. Moreover, the company expanded its maXTouch portfolio with the new MXT288UD touch controller family, comprising compact automotive grade packaged touch screen controllers.
We believe that Microchip's expanding product portfolio driven by new microcontroller roll outs will aid it in expanding customer base and sustaining its market-leading position. Moreover, the company is well poised to capitalize on synergies from accretive Microsemi and Atmel acquisitions.
Analog net sales of $370.2 million (28.1%) improved 0.7% sequentially.
FPGA revenues (6.7%) were $86.8 million, down 10.3% on a quarter-over-quarter basis. The decline was led by shut down of operations across “one significant aerospace customer” owing to COVID-19 restrictions.
Licensing, memory and other, or LMO product line (10.4%) reported revenues of $136.3 million, almost flat sequentially.
Geographically, revenues from Americas, Europe and Asia contributed 26.2%, 18.7% and 55.1% to net sales, respectively.
Non-GAAP gross margin contracted 30 basis points (bps) on a year-over-year basis to 61.7%.
Non-GAAP research & development expenses, as a percentage of net sales, contracted 150 bps year over year to 13.6%. Non-GAAP selling, general & administrative (SG&A) expenses, as a percentage of net sales, contracted 120 bps year over year at 9.5%. Non-GAAP operating expenses, as a percentage of net sales, contracted 270 bps year over year to 23.1%.
Consequently, non-GAAP operating margin expanded 240 bps on a year-over-year basis to 38.6%.
Balance Sheet & Cash Flow
As of Jun 30, 2020, cash and short-term investments came in at $380.2 million, compared with $403 million as of Mar 31, 2020.
As of Jun 30, 2020, total debt (long-term plus current portion) amounted to $9.33 billion compared with $9. 48 billion as of Mar 31, 2020. Notably, the company paid down $394 million of debt during the quarter.
Cash flow from operating activities was $501.8 million compared with $371.7 million reported in the prior quarter.
Microchip forecast second-quarter fiscal 2021 net sales of $1.205-$1.310 billion.
For the fiscal second quarter, non-GAAP earnings are anticipated in the range of $1.30-$1.52 per share.
Non-GAAP gross margin is anticipated in the range of 61.2-62.2%. Non-GAAP operating margin is anticipated in the range of 37-39%.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates revision.
Currently, Microchip Tech has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions has been net zero. Notably, Microchip Tech has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.