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Why Is Skyworks (SWKS) Down 19% Since Last Earnings Report?

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A month has gone by since the last earnings report for Skyworks Solutions (SWKS - Free Report) . Shares have lost about 19% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Skyworks due for a breakout? 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.

Skyworks' Q4 Earnings Top Estimates, Revenues Up Y/Y

Skyworks Solutions Inc. delivered fourth-quarter fiscal 2018 non-GAAP earnings of $1.94 per share, which beat the Zacks Consensus Estimate of $1.91 per share. Earnings also came above management’s guidance of $1.91 per share. The figure improved 6.6% from the year-ago quarter.

Revenues of $1.008 billion were up 2.3% year over year and 13% sequentially, primarily due to robust design wins in mobile business and Internet of Things (IoT).

Further, the revenue figure marginally surpassed the Zacks Consensus Estimate of $1.001 billion and exceeded management’s guidance of $1 billion.

Mobile contributed almost 72% of revenues, while the rest came from broad markets.

Notably, the company unveiled various high performance mobile solutions which in turn offset unit declines in premium smartphones and weakness in China. This was another positive during the reported quarter.

The better-than-expected performance reflected Skyworks’ growing clout in the Internet-of-Things (IoT) solutions and 5G applications.

Quarter Details

During the fourth quarter, Skyworks unveiled solutions from its Sky5 platform that has been authorized to support wireless 5G networks. This product delivers bandwidth coverage ranging from 60 megahertz to 6 gigahertz. Moreover, accelerating timeline for 5G deployment is a positive.

Additionally, the company powered Samsung’s Galaxy smartphones and clout smart audio solutions at Microsoft, Nintendo and Sony gaming platforms.

Moreover, Skyworks enabled telematics at BMW, Hyundai, Tesla, Toyota and General Motors.

The company has also increased presence across Nest thermostats, fire detectors and video doorbells by using 802.11ac and ax, LoRa, Bluetooth Low Energy, Zigbee, Thread and Wi-Fi protocols.

Additionally, the company leveraged LTE, DOCSIS 3.1 CAT-12 data cards for M2M applications, with 2.4 and 5 GHz front-ends.

Further, Skyworks recently concluded the acquisition of Avnera Corporation. The buyout gives Skyworks access to robust analog/mixed signal voice, audio and speech processing engines.

With this acquisition, Skyworks intents to leverage Avnera’s product portfolio and systems expertise in order to strengthen foothold in automotive, industrial, automation and high-end consumer markets.

Operating Details

Non-GAAP gross margin expanded 20 basis points (bps) on a year-over-year basis to 51.2%.

Research & development (R&D) expenses as percentage of revenues increased 90 bps on a year-over-year basis to 10.2%.

However, selling, general & administrative (SG&A) expenses decreased 30 bps from the year-ago quarter to 5.4%.

As a result, non-GAAP operating margin contracted 90 bps on a year-over-year basis to 37.6% in the reported quarter.

Balance Sheet & Cash Flow

As of Sep 28, 2018, cash & cash equivalents were $1.05 billion, down from $1.65 billion reported in the previous quarter.

Cash flow from operating activities was $207.6 million, down from $258 million in the previous quarter.

Capital expenditure was $112 million in the quarter.

The company paid a quarterly dividend of 38 cents per share. Skyworks repurchased 2.5 million shares for a total of $235 million.

Guidance

For first-quarter fiscal 2019, revenues are expected to be in the range of $1 billion to $1.020 billion.

Gross margin is expected in to be 51.2% (+/- 10 bps). Skyworks continues to target gross margin of 53% over the long term.

Operating expenses are projected to be $140 million.

Non-GAAP earnings are anticipated to be $1.91 per share, at mid-point.

How Have Estimates Been Moving Since Then?

Fresh estimates followed a downward path over the past two months. The consensus estimate has shifted -7.34% due to these changes.

VGM Scores

Currently, Skyworks has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. However, the stock was allocated a grade of B on the value side, putting it in the top 40% 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.

Outlook

Skyworks has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.




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