Linear Technology Corp. (LLTC) reported first-quarter fiscal 2015 earnings of 53 cents, which missed the Zacks Consensus Estimate by a penny. The results were impacted by a higher income tax rate, partially offset by higher volumes and lower interest expense.
Revenues
Linear reported revenues of $371.1 million, up 9% year over year and 1.7% sequentially. The increase was due to strong sales across automotive, industrial and communications markets. Additionally, sales increased both internationally as well as in the U.S. Within international, sales increased in Europe and Asia Pacific but decreased in Japan.
Also, first-quarter revenues were within the company’s guidance but narrowly missed the Zacks Consensus Estimate of $372.0 million. Average selling price was $1.87, down from $1.90 in the prior quarter.
Book-to-bill ratio was modestly negative in the quarter and bookings decreased sequentially in all end markets, with industrial market declining the most. Communication infrastructure and automotive markets witnessed the least decline.
By end markets, industrial continued to be the largest area, contributing 43% of the total first-quarter bookings, down from 44% in the previous quarter. The communications end market contributed 20%, up from 19% in the prior quarter, while automotive, consumer and computer end markets remained flat at 19%, 3% and 9%, respectively.
Margins
Gross margin for the quarter was 76%, flat sequentially and up 70 basis points (bps) from the year-ago quarter.
Operating expenses of $107.7 million were up 7.5% from the year-ago quarter figure of $100.2 million. Operating margin of 47% was flat sequentially but up 110 bps year over year. As a percentage of sales,research and development (R&D) as well as selling, general and administrative (SG&A) expenses decreased.
GAAP net income was $129.5 million or 53 cents per share in the reported quarter compared with $129.7 million or 53 cents in the previous quarter and $107.9 million or 45 cents in the year-ago quarter. As there were no one-time items, pro-forma earnings per share was also 53 cents in the quarter, down from 54 cents in the previous quarter.
Balance Sheet
Linear exited the first quarter with cash, cash equivalents and marketable securities of approximately $1.03 billion versus $1.01 billion in the prior quarter. Account receivables were $175.5 million, up from $173.3 million in the prior quarter.
During the quarter, Linear used $136.4 million from cash for operations, spending $26.9 million on capital expenditures. Free cash flow was $109.5 million in the last quarter. The company spent $34.1 million on share purchases and $65.7 million on dividends.
Additionally, Linear will pay a cash dividend of 27 cents per share on Nov 26, 2014 to stockholders of record on Nov 15.
Guidance
Management provided conservative guidance for the second quarter of fiscal 2015. The company expects revenues to decrease 3% to 6% sequentially but increase 4% to 8% year over year. The Zacks Consensus Estimate for revenues for the second quarter is pegged at $370.0 million.
Conclusion
Linear Technology reported a weak quarter with both the top and bottom line figures missing our expectations. The company’s business is well-diversified among core markets, such as industrial, automotive and communications infrastructure. However, its computing business has been hit by weakness in the PC and notebook markets.
Management provided weak revenue guidance reflecting the lower bookings rate and weakening macroeconomic environment outside the United States.
Additionally, the company announced that Paul Coghlan will retire as Chief Financial Officer at the end of the current fiscal year in Jul 2015 and Donald Zerio will be taking up the responsibilities of CFO on Jun 29, 2015.
Linear carries a Zacks Rank #4 (Sell). Other better-performing stocks that are worth considering include NVIDIA Corporation (NVDA), sporting a Zacks Rank #1 (Strong Buy), while Xcerra Corporation (XCRA) and American Capital Agency Corp. (AGNC), carry a Zacks Rank #2 (Buy).
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