A month has gone by since the last earnings report for Microsemi Corporation . Shares have added about 1% in that time frame, outperforming the market.
Will the recent positive trend continue leading up to its next earnings release, or is MSCC due for a pullback? Before we dive into how investors and analysts have reacted of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Recent Earnings
Microsemi reported first-quarter fiscal 2018 adjusted earnings of $1.01 per share, which was in line with the Zacks Consensus Estimate. Earnings were up 17.4% year over year but down 7.3% sequentially.
Net Sales of $468.7 million surpassed the Zacks Consensus Estimate of $460 million. The figure was up 7.6% from the prior-year quarter but down 1.4% sequentially. Vectron acquisition contributed sales of roughly $8.5 million in the quarter.
The company is benefiting from a strong data center market and improved conditions in aerospace & defense environment, led by a robust growth in satellite. Moreover, strong growth industrial end markets as well as anticipated improvement in the communications market outlook will drive growth in the rest of fiscal 2018.
Revenues in Detail
Microsemi generates revenues from the Communications, Defense & Aerospace, Data Center and Industrial markets.
Communications segment reported revenues of $163 million contributing 35% of total revenues, up 4% sequentially and 3% year over year. The increase was primarily attributed to the growth in broadband gateway end markets and improved outlook in China and India.
The aerospace & defense market generated revenues of $128 million, accounting for 27% of the quarter’s revenues, down 6% sequentially but up 14% from the year-ago quarter. This was driven primarily by solid results from satellite and space applications, and slightly by the Vectron acquisition.
The data center segment generated revenues of $109 million, accounting for 22% of the total revenues, down 4% sequentially and up 2.5% year over year. This was contributed by the acceptance of telemetry interface devices based on the Bluetooth low-energy standard.
The industrial sector reported 16% of the total revenues, which stayed flat sequentially and was up 6% from the prior-year quarter. The year-over-year growth was driven by solid results from automotive and semiconductor capital equipment applications.
Operating Details
Non-GAAP gross margin was 63.2%, down 30 basis points (bps) from the year-ago quarter and 120 bps sequentially. The year-over-year decrease was contributed by the Vectron acquisition.
EBITDA of $163.5 million improved 14.1% year over year.
Non-GAAP selling, general and administrative (SG&A) expenses as percentage of sales was 12.1% as compared with 14.1% in first-quarter 2017 and 12.4% in fourth-quarter 2017.
Moreover, non-GAAP research and development (R&D) expenses as percentage of sales was 19% as compared with 18.9% in first-quarter 2017 and 18.4% in fourth-quarter 2017.
Non GAAP operating margin expanded 170 bps but contracted 150 bps sequentially to 32.2%. The year-over-year expansion was driven by strong revenue growth and improved operating efficiencies.
Balance Sheet & Cash Flow
Cash and cash equivalents at the end of first-quarter fiscal 2018 were $166.6 million, up from $144.9 million in the last quarter.
Operating cash flow was $65.3 million compared with $156.9 million in the previous quarter and $77.6 million in the year-ago quarter. Capex reduced to $9.9 million from $10.6 million in the year-ago quarter and $17.6 million in the previous quarter.
Free cash flow was $55.4 million compared with $139.3 million in the previous quarter and $67.1 million in the year-ago quarter.
Inventories were $270.7 million compared with $239.1 million in the last quarter. Accounts receivable was $276 million compared with $267.9 million at the end of the prior quarter.
Guidance
Microsemi expects non-GAAP adjusted earnings between 93 cents and $1.07 per share for second quarter of fiscal 2018. Net sales is expected between $477 million and $502 million.
Further, the company expects non-GAAP gross margin between 61.6% and 62.8%, lower than the first-quarter figure, primarily due to the inclusion of Vectron, which is lower margin in nature. Moreover, anticipated strong sales from lower margin broadband gateway and semi cap products along with seasonally weak data center products sales will hurt gross margin.
However, management expects gross margin to expand in subsequent quarters primarily due to stronger data center and aerospace & defense mix. Accretion from the Vectron acquisition is anticipated in the latter half of next year due to the consolidation of an overseas fabrication facility.
Microsemi expects SG&A to increase by $1.3 – $2.3 million due to a full quarter of expense from Vectron. R&D expenses are expected to increase from $3.5 million to $7.5 million primarily due to a full quarter of expense from Vectron and key product tapeouts.
The company believes that revenue growth, and improved operating efficiencies as well as margins will increase free cash flow generation. This will be used for further acquisitions and share buybacks.
The company is expecting its Capex to be $20 million and $85 million for the next quarter and fiscal 2018, respectively.
How Have Estimates Been Moving Since Then?
Analysts were quiet during the last month as none of them issued any earnings estimate revisions.
VGM Scores
Currently, MSCC has a subpar Growth Score of D, though it is lagging a bit on the momentum front with an F. 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 F. If you aren't focused on one strategy, this score is the one you should be interested in.
Our style scores indicate that the stock is suitable for value investors.
Outlook
MSCC has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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Why Is Microsemi (MSCC) Up 1% Since Its Last Earnings Report?
A month has gone by since the last earnings report for Microsemi Corporation . Shares have added about 1% in that time frame, outperforming the market.
Will the recent positive trend continue leading up to its next earnings release, or is MSCC due for a pullback? Before we dive into how investors and analysts have reacted of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Recent Earnings
Microsemi reported first-quarter fiscal 2018 adjusted earnings of $1.01 per share, which was in line with the Zacks Consensus Estimate. Earnings were up 17.4% year over year but down 7.3% sequentially.
Net Sales of $468.7 million surpassed the Zacks Consensus Estimate of $460 million. The figure was up 7.6% from the prior-year quarter but down 1.4% sequentially. Vectron acquisition contributed sales of roughly $8.5 million in the quarter.
The company is benefiting from a strong data center market and improved conditions in aerospace & defense environment, led by a robust growth in satellite. Moreover, strong growth industrial end markets as well as anticipated improvement in the communications market outlook will drive growth in the rest of fiscal 2018.
Revenues in Detail
Microsemi generates revenues from the Communications, Defense & Aerospace, Data Center and Industrial markets.
Communications segment reported revenues of $163 million contributing 35% of total revenues, up 4% sequentially and 3% year over year. The increase was primarily attributed to the growth in broadband gateway end markets and improved outlook in China and India.
The aerospace & defense market generated revenues of $128 million, accounting for 27% of the quarter’s revenues, down 6% sequentially but up 14% from the year-ago quarter. This was driven primarily by solid results from satellite and space applications, and slightly by the Vectron acquisition.
The data center segment generated revenues of $109 million, accounting for 22% of the total revenues, down 4% sequentially and up 2.5% year over year. This was contributed by the acceptance of telemetry interface devices based on the Bluetooth low-energy standard.
The industrial sector reported 16% of the total revenues, which stayed flat sequentially and was up 6% from the prior-year quarter. The year-over-year growth was driven by solid results from automotive and semiconductor capital equipment applications.
Operating Details
Non-GAAP gross margin was 63.2%, down 30 basis points (bps) from the year-ago quarter and 120 bps sequentially. The year-over-year decrease was contributed by the Vectron acquisition.
EBITDA of $163.5 million improved 14.1% year over year.
Non-GAAP selling, general and administrative (SG&A) expenses as percentage of sales was 12.1% as compared with 14.1% in first-quarter 2017 and 12.4% in fourth-quarter 2017.
Moreover, non-GAAP research and development (R&D) expenses as percentage of sales was 19% as compared with 18.9% in first-quarter 2017 and 18.4% in fourth-quarter 2017.
Non GAAP operating margin expanded 170 bps but contracted 150 bps sequentially to 32.2%. The year-over-year expansion was driven by strong revenue growth and improved operating efficiencies.
Balance Sheet & Cash Flow
Cash and cash equivalents at the end of first-quarter fiscal 2018 were $166.6 million, up from $144.9 million in the last quarter.
Operating cash flow was $65.3 million compared with $156.9 million in the previous quarter and $77.6 million in the year-ago quarter. Capex reduced to $9.9 million from $10.6 million in the year-ago quarter and $17.6 million in the previous quarter.
Free cash flow was $55.4 million compared with $139.3 million in the previous quarter and $67.1 million in the year-ago quarter.
Inventories were $270.7 million compared with $239.1 million in the last quarter. Accounts receivable was $276 million compared with $267.9 million at the end of the prior quarter.
Guidance
Microsemi expects non-GAAP adjusted earnings between 93 cents and $1.07 per share for second quarter of fiscal 2018. Net sales is expected between $477 million and $502 million.
Further, the company expects non-GAAP gross margin between 61.6% and 62.8%, lower than the first-quarter figure, primarily due to the inclusion of Vectron, which is lower margin in nature. Moreover, anticipated strong sales from lower margin broadband gateway and semi cap products along with seasonally weak data center products sales will hurt gross margin.
However, management expects gross margin to expand in subsequent quarters primarily due to stronger data center and aerospace & defense mix. Accretion from the Vectron acquisition is anticipated in the latter half of next year due to the consolidation of an overseas fabrication facility.
Microsemi expects SG&A to increase by $1.3 – $2.3 million due to a full quarter of expense from Vectron. R&D expenses are expected to increase from $3.5 million to $7.5 million primarily due to a full quarter of expense from Vectron and key product tapeouts.
The company believes that revenue growth, and improved operating efficiencies as well as margins will increase free cash flow generation. This will be used for further acquisitions and share buybacks.
The company is expecting its Capex to be $20 million and $85 million for the next quarter and fiscal 2018, respectively.
How Have Estimates Been Moving Since Then?
Analysts were quiet during the last month as none of them issued any earnings estimate revisions.
Microsemi Corporation Price and Consensus
Microsemi Corporation Price and Consensus | Microsemi Corporation Quote
VGM Scores
Currently, MSCC has a subpar Growth Score of D, though it is lagging a bit on the momentum front with an F. 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 F. If you aren't focused on one strategy, this score is the one you should be interested in.
Our style scores indicate that the stock is suitable for value investors.
Outlook
MSCC has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.