A month has gone by since the last earnings report for Qorvo, Inc. (QRVO - Free Report) . Shares have added about 9% in that time frame.
Will the recent positive trend continue leading up to its next earnings release, or is QRVO due for a pullback? Before we dive into how investors and analysts have reacted as 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.
Qorvo Inc. delivered fourth-quarter fiscal 2018 non-GAAP earnings of $1.07 per share, which beat the Zacks Consensus Estimate by couple of cents. The figure jumped 25.9% from the year-ago quarter.
Revenues on a non-GAAP basis increased 3.5% year over year to $664.4 million. The figure was in line with the high-end of management’s guidance range.
The results reflected an improved demand environment in China. The company benefited from increased demand in the performance-tier for RF Flex and RF Fusion based solutions as well as for antenna tuning, discrete components and BAW-based multiplexers.
Qorvo continues to expect BAW-based products will represent around half of Mobile Products’ (“MP”) revenues by fiscal 2021. In fiscal 2018, the figure was in the range of 22-23%.
Segment-wise, MP revenues were $452 million higher than management’s guidance driven by improving China demand.
Infrastructure and Defense (“IDP”) revenues grew 26% year over year to $212 million. Growth reflects strong demand for the company’s solutions in defense (advanced radars and other electronic warfare products) and connectivity (Wi-Fi and emerging IoT applications). Rapid adoption of GaN for high-power applications drove defense top-line growth.
Accelerating timeline for 5G deployment bodes well for Qorvo. The company has participated in dozens of 5G field trials and demonstrations.
During the quarter, Qorvo launched the industry's first 28 gigahertz GaN on silicon carbide front end module for base stations. The company also released the industry's first BAW filter to deliver a quadrupling in power handling capabilities for 5G massive-MIMO front end modules.
Non-GAAP gross margin expanded 180 basis points (bps) from the year-ago quarter to 48%, and was toward the lower-end of management’s guidance. This was primarily due to unfavorable mix.
Non-GAAP operating expenses declined 200 bps on a year-over-year basis to 23.4% primarily driven by positive impacts from restructuring activities.
As a result, operating margin expanded 380 bps from the year-ago quarter to 24.5%.
Balance Sheet & Cash Flow
As of Mar 31, cash and cash equivalents were $926 million compared with $841.3 million as of Dec 30. Long-term debt was $983.3 million as compared with $1.09 billion at the end of the previous quarter.
Net cash provided by operating activities was $259 million down from $270.1 million in the previous quarter. Capital expenditures declined sequentially to $32 million.
Further, Qorvo has returned $51 million to shareholders under its ongoing share repurchase program.
For first-quarter of fiscal 2019, Qorvo expects revenues between $645 million and $655 million. However, gross margin is anticipated to decline sequentially to 44% due to unfavorable mix and higher costs associated with low SAW fab utilization. Earnings are projected to be 75 cents per share at mid-point.
IDP is expected to report strong results in the first quarter. MP revenues are anticipated to increase due to improving China demand.
For fiscal 2019, Qorvo expects revenues to grow 9-10% driven by strong growth from premium mobile products and continued strength in defense, IoT and GaN.
Qorvo stated that IDP long-term growth prospects are bright due to a diversified product portfolio that include solutions for advanced radars and other electronic warfare defense applications, Wi-Fi and connectivity applications and GaAs and GaN products for wireless infrastructure.
Management forecasts second half fiscal 2019 gross margin to be at least 50%. For fiscal 2019, gross margin is expected to be approximately 49%. The outlook is positive due expanding product portfolio, solid top-line growth, improving factory utilization and increasing operational efficiency.
Operating expenses are expected to increase in the first quarter to approximately $165 million on higher personnel costs, including increased design activity. However, for fiscal 2019, operating expenses as percentage of revenues are anticipated to 20%. Management expects to lower operating expenses as percentage of revenues in the long haul.
Management expects to generate free cash flow between $700 million and $800 million for fiscal 2019.
Qorvo remains on track to achieve operating margin of 33% by fiscal 2020.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates. There have been seven revisions lower for the current quarter. In the past month, the consensus estimate has shifted downward by 18.9% due to these changes.
Qorvo, Inc. Price and Consensus
At this time, QRVO has a strong Growth Score of A, though it is lagging a lot on the momentum front with an F. However, 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 B. 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 more suitable for growth investors than value investors.
Estimates have been broadly trending downward for the stock and the magnitude of these revisions indicates a downward shift. It's no surprise QRVO has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.