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Broadcom (AVGO) Earnings & Revenues Beat Estimates in Q3

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Broadcom (AVGO - Free Report) delivered third-quarter fiscal 2019 non-GAAP earnings of $5.16 per share outpacing the Zacks Consensus Estimate by 5 cents and improving 3.6% from the year-ago quarter.

Non-GAAP revenues from continuing operations were $5.515 billion, up 8.9% from the year-ago quarter. The figure surpassed the Zacks Consensus Estimate of $5.501.

Shares Down on Tepid Guidance

In the pre-market, shares of Broadcom are down approximately 1.2%. The decline can be attributed to tepid fiscal 2019 guidance.

Notably, the company maintained outlook for fiscal 2019. Broadcom continues to anticipate non-GAAP revenues of almost $22.5 billion. The Zacks Consensus Estimate is currently pegged at $22.58 billion.



Markedly, Broadcom stock has returned 20.4% year to date, underperforming the industry’s growth of 25.5%.

Segmental Revenues

Semiconductor solutions’ revenues (79% of total net revenues) totaled $4.353 billion, down 5% from the year-ago quarter owing to soft demand in broadband and storage domains. Nonetheless, robust demand for networking solutions, including routing and switching platforms, and seasonal uptick in wireless vertical, mitigated the decline.

Infrastructure software revenues (21%) soared 132% year over year to $1.14 billion. The company is benefiting from synergies from the CA and Brocade buyouts. Moreover, management is banking on contribution from the acquisition of Symantec’s enterprise security business.

Management believes Symantec’s strength in enterprise business and substantial customer base are anticipated to enable Broadcom explore the cyber security market and expand its addressable TAM by $160 billion. However, the company noted soft demand in SAN switching vertical.

Revenues for Intellectual property licensing were $22 million during the reported quarter compared with $3 million in the year-ago period.

Operating Details

Non-GAAP gross margin expanded 370 bps on a year-over-year basis to 71%. The increase can be attributed to higher revenue base and improving contribution from infrastructure software vertical.

Non-GAAP operating expenses increased 15.1% year over year to $1.006 billion. Operating margin expanded 270 bps from the year-ago quarter to 52.8%.
 

Broadcom Inc. Price, Consensus and EPS Surprise

 

Broadcom Inc. Price, Consensus and EPS Surprise

Broadcom Inc. price-consensus-eps-surprise-chart | Broadcom Inc. Quote

Balance Sheet & Cash Flow

As of Aug 4, 2019, cash & cash equivalents were $5.462 billion, up from $5.328 billion reported at the end of the previous quarter. Long-term debt (including current portion) was $37.565 billion at the end of the fiscal third quarter compared with $37.548 billion in the prior quarter.

Broadcom generated cash flow from operations of roughly $2.419 billion compared with $2.667 billion in the previous quarter. Capital expenditure totaled $112 million, down from the last reported quarter’s $125 million. Free cash flow during the quarter was $2.307 billion, down from $2.542 billion reported in fiscal second quarter.

During the reported quarter, the company repurchased approximately 2.6 million shares for $736 million. Additionally, Broadcom returned $1.057 billion in form of dividends to shareholders during the fiscal third quarter.

The company declared a quarterly dividend of $2.65 per share, payable on Oct 1, 2019, to shareholders as on Sep 23, 2019.

Guidance

Semiconductor solutions and infrastructure software are expected to contribute $17.5 billion and $5 billion, respectively, to total revenues.

Management notes stability in demand for mainframe and enterprise software across Western Europe and North America. Demand for SAN switching is anticipated to be down, even as OEMs work down on inventories.

Uncertainty concerning U.S. China trade war is compelling management to stay cautious. Nonetheless, the company anticipates seasonal demand for smartphone parts from “large North American OEM customer” likely referring to Apple (AAPL - Free Report) . Notably, Apple’s iPhone 11 is scheduled to go on sale on Sep 20.

Non-GAAP operating margin is now anticipated to be 52.5% (previously 51%).

The company continues to project capital expenditure of $550 million for fiscal 2019.

Zacks Rank & Stock to Consider

Currently, Broadcom carries a Zacks Rank #4 (Sell).

A better-ranked stock in the broader technology sector is Perficient (PRFT - Free Report) , flaunting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings growth rate for Perficient is currently pegged at 10.75%.

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