Teradyne Inc. (TER) reported second-quarter 2014 earnings of 54 cents per share, comfortably beating the Zacks Consensus Estimate of 41 cents. Adjusted earnings per share exclude one-time items but include stock-based compensation expense.
Revenues
Revenues of $525.6 million were up 63.7% sequentially and 22.5% year over year. Revenues beat the Zacks Consensus Estimate of $490 million and were above management’s guided range of $460–$490 million.
Approximately 80.2% of revenues in the quarter came from semiconductor testing platforms, 13.1% from system testing and the remaining 6.7% from wireless testing business.
Bookings
Total bookings in the quarter amounted to $627.0 million, of which $535.0 million were in Semiconductor Test, $52.0 million in Wireless Test and $40.0 million in the Systems Test Group.
Total orders improved 39.0% sequentially and 32% year over year, with Semiconductor Test orders increasing 46.2% sequentially — the highest in over 10 years. The increase was driven by capacity expansion and new design wins in applications processor, power management, microcontroller and memory test.
Sequentially, Systems Test Group orders increased 48.1% but Wireless Test orders were down 8.8%.
Margins
Reported gross margin for the quarter was 55.3%, up 330 basis points (bps) sequentially but down 90 bps year over year. The sequential increase was due to higher revenues and a favorable mix.
Total operating expenses of $169.7 million were up 9.3% from $155.3 million in the year-ago quarter. Both engineering & development (E&D) and selling & administrative (S&A) expenses decreased as a percentage of sales. As a result, the reported operating margin was 23.0%, up 300 bps from the year-ago quarter.
The quarter’s GAAP net income was $101.2 million or 47 cents per share, up from $66.6 million or 28 cents in the comparable quarter last year. Excluding special items but including stock-based compensation expense, non-GAAP net income was $116.4 million or 54 cents per share compared with $89.1 million or 43 cents in the year-ago quarter.
Balance Sheet
The company ended the second quarter with cash and cash equivalents, and marketable securities balance of $743.1 million, up from $694.8 million in the prior quarter. Trade receivables were $300.8 million, up from $215.6 million in the prior quarter.
Cash flow from operations was $209.2 million versus ($25.8) million in the prior quarter. Capex was $60.2 million versus $31.2 million in the prior quarter.
Guidance
Management provided guidance for the third quarter of 2014. Revenues are expected in the range of $440–$480 million, down 12.5% sequentially at the mid-point. The Zacks Consensus Estimate for revenues for the third quarter is pegged at $509.0 million. Non-GAAP earnings per share from continuing operations are expected in the range of 34 to 43 cents and GAAP earnings are expected within 27 to 36 cents. The Zacks consensus earnings estimate for the third quarter is pegged at 50 cents.
Conclusion
Teradyne’s first-quarter earnings beat the Zacks Consensus Estimate on higher revenues.
The company reported improving orders, indicating increasing demand for Teradyne products in the near future.
We remain optimistic about Teradyne in the long term, given the popularity of its products; the LitePoint acquisition that strengthens its portfolio and continuous design win momentum. However, we expect the shares to remain under pressure due to weakness in key end markets.
Currently, Teradyne has a Zacks Rank #3 (Hold). Other stocks that have been performing well and are worth a look include Entergy Corporation (ETR), Agilent Technologies (A) and Ametek Inc. (AME). All these stocks have a Zacks Rank #2 (Buy).
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