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Analog Devices (ADI) Beats on Q4 Earnings and Revenues

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Analog Devices Inc. (ADI - Free Report) reported fourth- quarter fiscal 2016 adjusted earnings of $1.05 per share, which comprehensively beat the Zacks Consensus Estimate of 90 cents. Adjusted earnings per share exclude one-time items but include stock-based compensation expenses.

The better-than-expected results were driven by strength across all the markets - industrial, automotive consumer and communications, and the company’s increased focus on innovation and operational execution.

At the call, management sounded upbeat on the company’s progress toward closure of the Linear Technology acquisition.

It is expected to make Analog Devices an industry leader across a huge range of products, customer breadth and scale. The deal will also help it to grow significantly in industrial, automotive, and communications infrastructure markets.

While its investments are aimed at strengthening the product line and countering increasing competition, the policy of returning cash through dividends and share buybacks will ensure investor loyalty.

ANALOG DEVICES Price, Consensus and EPS Surprise

Let’s delve deeper into the numbers.

Revenues

Analog Devices generated revenues of $1003.6 million, up 15.4% sequentially and 2.5% year over year. The sequential growth was due to improved performance in industrial, automotive and consumer markets offsetting weakness in the communications market.

Moreover, revenues exceeded the company’s guidance range of $910 million to $970 million. It also surpassed the Zacks Consensus Estimate of $942.6 million.

Revenues by End Markets

The Industrial market generated 40% of Analog Devices’ total revenue (up 6.1% sequentially and 7.7% year over year). This represents a diversified market for the company, including industrial automation, instrumentation, energy, defense and health care segments.

Communications generated 17% of total revenue, down 1.7% sequentially but up 6.4% year over year.

The Automotive segment generated around 14% of Analog Devices’ fourth quarter revenues, up 5.1% sequentially and 7% year over year.

The Consumer segment, which Analog Devices clubs with its computing and handset businesses, increased 57.6% sequentially but decreased 7.2% year over year. It accounted for 29% of total revenue.

Margins

Pro-forma gross margin was 66.6%, up 60 basis points (bps) sequentially and 91 bps year over year. The improvement was primarily due to lower inventory reserves.

Analog Devices reported adjusted operating expenses of $286.5 million, up 3.2% sequentially but down 1.8% year over year. Pro-forma operating margin of 38.1% was up 399 bps sequentially and 218 bps year over year.

Net Profit

On a GAAP basis, Analog Devices recorded a net profit of $296.2 million or 95 cents per share compared with $96.3 million or 30 cents in the year -ago quarter.

The company generated adjusted net profit of $327.6 million compared with $326.1 million in the fourth quarter fiscal of 2015. Pro-forma earnings per share came in at $1.05 compared with $1.03 in the year ago quarter.

Balance Sheet

Analog Devices exited the fourth quarter with cash and short-term investments of approximately $4.06 billion, up from $3.80 billion in the prior quarter. Accounts receivables were $477.6 million, up from $453 million in the previous quarter.

Long-term debt was approximately $1.7 billion, resulting in a net cash position of $2.04 billion.

Net cash flow from operations was around $487 million. Analog Devices spent $1.4 million on share repurchases and $129.6 million on cash dividends during the fourth quarter.

Guidance

For the first quarter of fiscal 2017, management expects revenues in a range of $840 million to $900 million. The Zacks Consensus Estimate is pegged at $840.54 million. On a non-GAAP basis, the company estimates gross margin of approximately 65.5% to 66.0%; operating expenses are expected to be slightly up sequentially; interest and other expense between $20 million and $25 million, tax rate of approximately 11% and earnings per share in a range of 68–78 cents. The Zacks Consensus Estimate is pegged at 73 cents.

Zacks Rank & Other Picks

Currently, Analog Devices has a Zacks Rank #3 (Hold). Better-ranked stocks in the broader technology sector include NVIDIA Corporation (NVDA - Free Report) , Kimball Electronics, Inc. (KE - Free Report) and Control4 Corporation (CTRL - Free Report) , each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

For the current year, the consensus estimate for NVIDIA has increased 33.3% in the past 30 days. Estimates for Kimball Electronics and Control4 went up by 8.1% and 10%, respectively, over the same time frame. 

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