It has been about a month since the last earnings report for Qorvo (QRVO - Free Report) . Shares have lost about 16.8% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Qorvo due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Qorvo Surpasses Q2 Earnings & Revenues Estimates, Lowers Q3 Outlook
Qorvo Inc. delivered second-quarter fiscal 2019 non-GAAP earnings of $1.75 per share, surpassing the Zacks Consensus Estimate of $1.62 per share. The figure jumped 15.1% from the year-ago quarter.
Revenues on a non-GAAP basis increased 7.6% year over year to $884.4 million. The figure was above management’s guidance of $850-$860 million. The Zacks Consensus Estimate is pegged at $856 million.
The results can be attributed to robust mobile growth, improved progress in IDP and stringent cost control measures. The company benefited from increased demand in the performance-tier for RF Fusion based solutions, antenna tuning, discrete components and BAW-based multiplexers.
Segment-wise, Mobile Products (“MP”) revenues were $667 million, up 37% sequentially driven by improving demand of flagship smartphone product.
Infrastructure and Defense (“IDP”) revenues grew 15% year over year to $218million. The year-over-year increase was primarily due to robust growth in company’s wireless connectivity and growth in base station solutions.
Further, 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 also drove defense top-line growth.
Revenue for IDP's GaN-based applications surged 27% year over year.
Qorvo unveiled QPG6095 system-on-chip (SoC) controller integrated with new LEEDARSON smart light bulb and light switch solution to enhance smart home communications systems for ultra-low-power wireless applications.
Further, Qorvo was selected by Samsung to supply 3.5 GHz 5G FEM, supporting multiple 5G mobile device samples. The company also started shipping RF Fusion Phase 6 for Vivo's NEX flagship smartphone.
Accelerating timeline for 5G deployment bodes well for Qorvo. The company has participated in dozens of 5G field trials and demonstrations. We believe an expanding portfolio enabling 5G deployment augurs well for the company.
Non-GAAP gross margin expanded 30 basis points (bps) from the year-ago quarter to 47.7%. This was primarily due to favorable product mix, increase in factory utilization and productivity.
Non-GAAP operating expenses as percentage of revenues contacted 30 bps on a year-over-year basis to 19% primarily on the back of positive impact from restructuring activities.
Non-GAAP operating margin expanded 50 bps from the year-ago quarter to 28.6%.
Balance Sheet & Cash Flow
As of Sep 29, 2018, cash and cash equivalents were $557.9 million compared with $392 million reported in the previous quarter. Long-term debt was $735.1 million as compared with $558.3 million at the end of the previous quarter.
Net cash provided by operating activities was $214.5 million up from $75 million in the previous quarter. Free cash flow during the quarter came in at $144.4 million.
During the reported quarter, repurchased worth $87 million shares under the share repurchase program.
Revised Guidance for Q3
On Nov 13, 2018, Qorvo provided an update on third-quarter fiscal 2019 outlook. The company now anticipates third-quarter revenues for 2018 to be in the band of $800 million to $840 million (midpoint of $820 million), down from its prior range of $880-$900 million (mid-point of $890 million) citing reduced demand for flagship smartphones. It reflects a decline of 7.9% considering mid-point level.
Non-GAAP earnings per share have been forecast to be $1.70 per share, down from the previous guidance of $1.95 per share.
Non-GAAP gross margin is now anticipated be 49.5%, down from the previous prediction of 50% citing concerns pertaining to lower factory utilization.
Moreover, Qorvo anticipates revenues to be down by roughly 10% for the fourth-quarter of fiscal 2019, on a sequential basis.
However, on a positive note, Qorvo lowered third-quarter fiscal 2019 non-GAAP operating expenses expectations by $4 million to $161 million, primarily backed by reduced incentive compensation and stringent cost methods.
The company also noted that it does not anticipate any major demand alterations from smartphone device makers based out of China. Further, the company continues to expect strong results from Infrastructure and Defense Products (IDP) segment in the third quarter.
Guidance for 2019
For fiscal 2019, Qorvo continues to expect revenues to grow around 10% driven by strong growth from premium mobile products and continued strength in defense, IoT and GaN.
Qorvo announced 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 as well as GaAs and GaN products for wireless infrastructure.
For fiscal 2019, operating expenses as percentage of revenues are anticipated to around 20%.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -15.54% due to these changes.
At this time, Qorvo has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of A on the value side, putting it in the top quintile 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.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Qorvo has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.