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Teradyne Inc. (TER - Free Report) reported second-quarter 2017 earnings of 90 cents per share, surpassing the Zacks Consensus Estimate of 86 cents. Also, earnings increased 72% year over year.Adjusted earnings per share exclude one-time items but include stock-based compensation expense.

Following the second-quarter results, Teradyne’s share price surged 0.29%. Also, on a year to date basis, the stock has outperformed the industry it belongs to. It has returned 35.8% compared with the industry’s gain of 29.1%.

Revenues

Revenues of $696.9 million increased 52.5% sequentially and 31% year over year. Also, the figure came above the Zacks Consensus Estimate of $665.0 million and at the higher-end of management’s guided range of $660–$700 million.

Approximately 85% of revenues came from semiconductor testing platforms, 6% from Industrial Automation, 5% from system test business and the remaining 4% from wireless test business.

Bookings

Total orders amounted to $462 million, declining 22.4% sequentially.

On a sequential basis, only Wireless Test Group orders were up 11.1% to $30 million, while all others decreased. Semiconductor Test orders were down 22.5% year over year, Systems Test orders decreased 37%, while Industrial Automation orders were declined 26.7%.

Margins

Pro forma gross margin was 56%, down 200 basis points (bps) sequentially but up 280 bps year over year. The sequential decrease was due to an unfavorable mix.

Total adjusted operating expenses of $170.9 million increased 8.5% year over year. As a percentage of sales, both engineering & development expenses and selling & administrative expenses decreased. As a result, adjusted operating margin came in at 31.3%, up 860 bps sequentially and 790 bps year over year.

GAAP net income was $175.0 million in the first quarter against net loss of $223.5 million in the year-ago quarter. Excluding special items but including stock-based compensation expense, non-GAAP net income came in at $181.5 million or 90 cents per share compared with $111.7 million or 55 cents in the year-ago quarter.

Balance Sheet

Teradyne ended the quarter with cash and cash equivalents and marketable securities balance of $1.41 billion, up from $1.22 billion in the prior quarter. Trade receivables were $405.9 million, up from $315 million last quarter.

Cash flow from operations was $230.3 million compared with $61.1 million in the previous quarter. Capex was $23.9 million compared with $22.1 million in the first quarter.

Share Repurchase/Dividend

In the reported quarter, Teradyne spent $56.6 million on share repurchases and paid $13.9 million as dividend.

Q3 Guidance

Management expects third-quarter revenues in the range of $455–$485 million, decreasing 32.6% sequentially at the mid-point. The Zacks Consensus Estimate is pegged at $445.4 million.

Non-GAAP earnings per share from continuing operations are likely to be in the range of 39–46 cents. The Zacks Consensus Estimate is pegged at 42 cents. GAAP earnings are expected in the range of 35–42 cents.

Conclusion

Teradyne is a leading provider of automated test equipment. The company reported strong second-quarter results, with both the top line and the bottom line outperforming the respective Zacks Consensus Estimate.

Management expects strong demand in its core test businesses in the upcoming quarter. Given the popularity of its products, acquisition of Universal Robots and continuous design wins, we are optimistic about Teradyne’s performance in the long run. However, weakness in the wireless test market could be a near-term concern.

Teradyne, Inc. Price, Consensus and EPS Surprise

 

Teradyne, Inc. Price, Consensus and EPS Surprise | Teradyne, Inc. Quote

Other Stocks to Consider

Currently, Teradyne has a Zacks Rank #3 (Hold). Some better-ranked stocks in the same space are Lam Research Corporation (LRCX - Free Report) , carrying a Zacks Rank #1, and Applied Materials (AMAT - Free Report) and Fortive Corporation (FTV - Free Report) , carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Lam Research delivered a positive earnings surprise of 4.44%, on average, in the trailing four quarters.

Applied Materials delivered a positive earnings surprise of 3.35%, on average, in the trailing four quarters.

Fortive Corporation delivered a positive earnings surprise of 5.80%, on average, in the trailing four quarters.

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