A month has gone by since the last earnings report for Maxim Integrated Products (MXIM - Free Report) . Shares have lost about 10.9% 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 its most recent earnings report in order to get a better handle on the important drivers.
Maxim Q4 Earnings In Line, Revenues Lag Estimates
Maxim Integrated Products reported fiscal fourth-quarter 2019 adjusted earnings of 57 cents per share, which came in line with the Zacks Consensus Estimate. Notably, the figure declined 21.9% year over year but improved 9.6% on a sequential basis.
Revenues of $556.54 million came within the company’s guided range of $540 million to $580 million. Notably, the figure missed the Zacks Consensus Estimate of $560 million and decreased 12% year over year. However, the figure increased 3% from the previous quarter.
This can be attributed to sluggish demand environment, which impacted the company’s end-market performance, especially in the industrial, consumer and, communications and data center markets.
End-Market in Detail
Industrial: The company generated 29% of total revenues from this market during the reported quarter. Revenues in this market declined 20% from the prior-year quarter owing to weak demand conditions.
Automotive: This market yielded 25% of the company’s revenues during the fiscal fourth quarter. Further, revenues were up 2% on a year-over-year basis. This can primarily be attributed to accelerating revenues from driver assistance content. Strong adoption rate of Maxim’s battery management system products for electric vehicles also contributed to the results.
However, slowdown in the global auto production impacted the company’s infotainment and auto body electronics businesses during the reported quarter.
Consumer: Maxim generated 25% of revenues from this market. Revenues in this market went down 7% year over year, owing to sluggishness in the smartphone market. This impact was partially mitigated by improved performance of the company’s wearables and peripheral businesses.
Communications and Data Center: Revenues from this market accounted for 17% of the total revenues, declining 23% from the year-ago quarter. This was on account of weak performance of building block products during the reported quarter. Further, sluggish demand for Maxim’s 100G laser driver products affected the segment’s revenues.
Computing: This market accounted for 4% of the total revenues during the quarter under review. Revenues declined 8% year over year in this market.
Non-GAAP gross margin was 64.8%, contracting 320 bps from the year-ago quarter.
Non-GAAP operating expenses of $180.3 million decreased 7.4% year over year. However, as a percentage of revenues, the figure expanded 170 bps from the prior-year quarter.
Non-GAAP Operating margin came in 32%, down from 35.1% in the year-ago quarter.
Balance Sheet & Cash Flow
As of Jun 29, 2019, cash, cash equivalents and short-term investments were $1.89 billion, which almost remained flat from the previous quarter.
During the quarter under review, cash flow from operations was $237.47 million, improving from $206.94 million in the previous quarter. The company utilized $31 million for capital expenditure during the fiscal fourth quarter.
Further, trailing 12-month free cash flow was $793 million, down from $899 million in the fiscal third quarter.
Further, Maxim spent $102 million in repurchasing shares and made $125 million of dividend payment (46 cents per share).
For fiscal first-quarter 2020, earnings per share are expected in the range of 46-52 cents on an adjusted basis.
Further, Maxim expects revenues in the range of $510 million to $550 million.
Non-GAAP gross margin is expected within the range of 63-65%.
Management expects the fiscal first quarter to be soft for industrial market. This market is likely to witness seasonality, which will act as an overhang.
Further, in automotive market, sluggish auto production is expected to be a major concern. Additionally, market headwinds in China, on account of weak consumer demand for auto, are likely to affect the shipment of the company’s battery management systems in the September quarter. Nevertheless, Maxim anticipates revenues from this product line to surge year over year.
Furthermore, smartphone market weakness remains a headwind for consumer market. Revenues from Samsung are anticipated to be down 50% year over year owing to lower content and unit shipments. However, Maxim remains optimistic about its gaming, peripherals, wearables and tablet business.
In communications and data center market, Maxim expects suspension of shipments to Huawei and weak building block products to be a major headwind. These are likely to offset the positive effects of strengthening demand for 100G laser drivers and modules.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates revision. The consensus estimate has shifted -20.48% due to these changes.
At this time, Maxim has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. However, the stock was allocated a grade of F on the value side, putting it in the lowest quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. 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 Maxim has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.