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IRF Beats on Q1 Earnings

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International Rectifier Corp. reported first-quarter 2013 earnings per share of 21 cents per share, exceeding the Zacks Consensus Estimate of 14 cents per share.

Revenues

The company reported revenues of $269.8 million, down 2.4% sequentially but up 6.9% year over year and above management’s guidance of $260 million–$268 million. Revenues exceeded the guidance due to strong demand across Power management devices, Energy saving and Automotive products, partially offset by weakness in other segments.

Segment-wise, Power management devices revenues increased 12.3% year over year to $102.0 million; Energy saving products revenues increased 13.6% to $50.5 million; Automotive products revenues increased 26.4% to $36.5 million. However, Enterprise power and HiRel revenues dropped 14.7% and 0.2% to $32.2 million and $48.3 million, respectively.

Intellectual property revenues were $0.24 million in the quarter, down 88.7% year over year.

Margins

Reported gross margin for the quarter was 35.3%, up 520 basis points (bps) sequentially and 740 bps from the year-ago quarter. The increase was due to better mix and manufacturing efficiencies in the quarter.

Reported operating expenses of $79.0 million decreased 13.6% year over year due to solid expense management. Both 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 net result was an operating profit of $16.4 million, up significantly from the year-ago quarter’s operating loss of (20.8) million.

The quarter’s GAAP net income was $8.7 million or 12 cents per share, compared with a net loss of $28.8 million or 42 cents per share in the comparable quarter last year. Excluding special items, non-GAAP net income was $15.1 million or 21 cents per share compared with net loss of $13.9 million or loss of 20 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 $478.8 million, up from $455.2 million in the prior quarter. Trade receivables were $151.7 million, up from $137.8 million in the prior quarter.

Cash flow from operations was $24.8 million, down from $57.8 million in the prior quarter. Capital expenditure (Capex) was $11.9 million versus $11.7 million in the prior quarter.

Guidance

For the second quarter of 2014, International Rectifier expects total revenue in the range of $260 million–$270 million, representing a sequential increase of 1.8% at the mid-point. GAAP gross margins are expected in the range of 34.3% to 35.3% and non-GAAP gross margins in the range of 34.5% to 35.5%. Total non-GAAP operating expenses are expected in the range of $75.0 million–$77.0 million. Net other expense is expected to be about $1 million. GAAP tax amount and non-GAAP tax amount are likely to be in the range of $4.5 million–$5.5 million and $3.5 million–$4.5 million, respectively.

Conclusion

International Rectifier designs, manufactures and markets analog integrated circuits (ICs) 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 second-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 #4 (Sell). Other stocks that are performing well at current levels include Melco Crown Entertainment Limited , Akorn Inc. (AKRX - Free Report) and Northern Oil And Gas Inc. (NOG - Free Report) . All these stocks carry a Zacks Rank #1 (Strong Buy).


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