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Why Is Maxim (MXIM) Down 12.2% Since Last Earnings Report?

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A month has gone by since the last earnings report for Maxim Integrated Products (MXIM - Free Report) . Shares have lost about 12.2% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Maxim 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 catalysts.

Maxim Q3 Earnings In Line, Revenues Beat Estimates

Maxim Integrated Products reported fiscal third-quarter 2019 adjusted earnings of 52 cents per share, which came in line with the Zacks Consensus Estimate. Notably, the figure declined 28.8% year over year and 13.3% on a sequential basis.

Revenues of $542.4 million also surpassed the Zacks Consensus Estimate of $539.9 million. The top line was within the company’s guided range of $520 million to $560 million.

However, the figure decreased 16% year over year and 5.9% from the previous quarter. This was due to sluggish demand environment which impacted the company’s end-market performance, especially in the industrial, consumer and communications and data centre markets.

Nevertheless, continued momentum in automotive market remained positive.

End-Market in Detail

Industrial: The company generated 28% of total revenues from this market during the reported quarter. Revenues in this market decreased 18% from the prior-year quarter owing to weak demand and seasonality in the market. Moreover, seasonal fluctuations impacted re-sales figure of the company.

Automotive: This market yielded 25% of the company’s revenues during the fiscal third quarter. Further, revenues were up 5% on a year-over-year basis. This can primarily be attributed to accelerating revenues from driver assistance content. Further, increasing production of electric vehicle led to the strong adoption rate of Maxim’s battery management system products. This further contributed to the top line within this segment.

Consumer: Maxim generated 26% of revenues from this market. Revenues in this market went down 27% year over year, owing to weak performance of the company’s wearables, tablets and peripheral businesses. Further, sluggishness in the smartphone market remained a concern throughout the reported quarter.

Communications and Data Center: Revenues from this market accounted for 18% of the total revenues, which went down 22% from the year-ago quarter. This can be attributed to weak performance of building block products during the reported quarter. Further, decreasing demand for Maxim’s 100G laser drive products affected revenue generation in this segment.

Computing: This market accounted for 3% of the total revenues during the quarter under review. Revenues declined 15% year over year in this market.

Operating Details

Non-GAAP gross margin was 63.8%, contracting 340 bps from the year-ago quarter. This was due to high inventory and slowdown in top-line generation.

Non-GAAP operating expenses of $181.2 million decreased 7.4% year over year. However, as a percentage of revenues, the figure expanded 320 bps from the prior-year quarter.

Non-GAAP Operating margin came in 30%, down significantly from 37.1% in the year-ago quarter.

Balance Sheet & Cash Flow

As of Mar 30, 2019, cash, cash equivalents and short-term investments were $1.89 billion compared with $1.96 billion as of Dec 29, 2018.

During the quarter under review, cash flow from operations was $206.94 million, decreasing from $224.25 million in the last reported quarter. The company utilized $21 million for capital expenditure during the fiscal third quarter.

Adjusted trailing 12-month free cash flow was $899 million, down from $919 million in the fiscal second quarter.

Further, Maxim spent $117 million in repurchasing shares and made $126 million of dividend payment (46 cents per share).

Guidance

For fiscal fourth-quarter 2019, Maxim expects revenues in the range of $540 million to $580 million. Non-GAAP gross margin is expected within the range of 64-67%.

Earnings per share are expected in the range of 54-60 cents on an adjusted basis.

Management expects to retain its strong momentum in the automotive market in the fiscal fourth quarter, backed by the company’s strengthening content in driver assistance applications and well performing battery management systems.

Further, the company expects to gain from content growth in factory automation which is likely to drive revenues in the industrial market. Notably, the market is expected to ride on favourable seasonality and broad-based industrial products.

However, in consumer market, sluggishness in smartphone business is anticipated to offset the strong performance of Maxim’s wearables, gaming and peripherals businesses.

Additionally, communications and data centre market is likely to be down owing to weak demand for the company’s building block products and persistent sluggishness in the 100G laser driver shipment.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates.

VGM Scores

At this time, Maxim has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. Charting a somewhat similar path, 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 C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Maxim has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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