It has been about a month since the last earnings report for Microchip Technology (MCHP - Free Report) . Shares have added about 1% in that time frame, underperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Microchip Tech due for a pullback? 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.
Microchip Q2 Earnings In Line, Revenues Miss Estimates
Microchip Technology Incorporated reported second-quarter fiscal 2020 non-GAAP earnings of $1.43 per share, in line with the Zacks Consensus Estimate. The figure was within management’s guided range of $1.37-$1.49 per share. Notably, the figure declined from $1.81 reported in the year-ago quarter.
Net sales declined 6.6% from the year-ago quarter to $1.338 billion on a non-GAAP basis. The figure also missed the Zacks Consensus Estimate of $1.353 billion. Notably, the top line was lower than the mid-point of management’s guided range of $1.323-$1.375 billion (mid-point $1.349 billion).
Notably, the impact of Huawei shipment limitations acted as the primary tailwind during the reported quarter. Further, negative developments pertaining to the U.S.-China trade war added to woes.
Microcontrollers and analog contributed approximately 53.3% and 28.7%, respectively, to total revenues in the fiscal second quarter. Notably, Microcontroller business was down 1.3% on a sequential basis, while analog business was up 0.2% quarter over quarter.
Microchip reported non-GAAP gross margin of 62.2% expanding 90 bps on a year-over-year basis.
Non-GAAP operating expenses, as percentage of revenues, were up 90 bps year over year to 25.6%. The increase can primarily be attributed to higher research & development (R&D) and selling, general & administrative (SG&A) expenses.
Consequently, non-GAAP operating margin contracted 20 bps from the year-ago quarter to 36.7%.
Balance Sheet & Cash Flow
The company exited the quarter under review with $405.1 million of cash and short-term investments compared with $437.1 million reported in the previous quarter. Total debt (long-term plus current portion) amounted to $9.8 billion compared with $10.08 billion in the previous quarter.
Cash flow from operating activities was $396 million during the quarter.
Notably, the company paid $315.5 million of total debt during the quarter.
During the reported quarter, the company announced a quarterly cash dividend of 36.65 cents per share.
Microchip forecasts third-quarter fiscal 2020 net sales of $1.204-$1.311 billion (mid-point $1.257 billion).
For the third-quarter, non-GAAP earnings are anticipated in the range of $1.12-$1.32 per share (mid-point $1.22 billion).
Non-GAAP gross margin is anticipated in the range of 61-61.4%. Non-GAAP operating expenses, as percentage of sales, are projected at 26.2-28%, while operating margin is expected at 33-35.2%.
Microchip's inventory days in the third quarter are expected between 131 and 144 days. Capital expenditures are estimated to be in the range of $20-$25 million.
For fiscal 2020, capital expenditures are projected to be in the range of $90 million and $100 million.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended downward during the past month. The consensus estimate has shifted -16.37% due to these changes.
At this time, Microchip Tech has a subpar Growth Score of D, a grade with the same score on the momentum front. 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 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 Microchip Tech has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.