Teradyne Inc. (TER) reported third-quarter 2014 earnings of 44 cents per share, comfortably beating the Zacks Consensus Estimate of 39 cents. Adjusted earnings per share exclude one-time items but include stock-based compensation expense.
Revenues
Revenues of $478.0 million were down 9.1% sequentially but up 10.3% year over year. Revenues beat the Zacks Consensus Estimate of $462 million and were at the higher end of management’s guided range of $440–$480 million.
Approximately 79.5% of revenues in the quarter came from semiconductor testing platforms, 11.5% from wireless testing and the remaining 9% from system testing business.
Bookings
Total orders in the quarter totaled $273.0 million, down 56.5% sequentially but up 0.7% year over year. Specifically, Semiconductor Test orders of $203.0 million were down 62.1%, Wireless Test orders of $42.0 million declined 19.2% and Systems Test Group orders went down 30% to $28 million, on a sequential basis.
Margins
Reported gross margin for the quarter was 54.6%, down 70 basis points (bps) sequentially and 410 bps year over year. The decrease was due to lower revenues and an unfavorable mix.
Total operating expenses of $162.9 million were up 1.3% from $160.8 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 20.6%, down 100 bps from the year-ago quarter.
The quarter’s GAAP net income was $82.9 million or 38 cents per share, up from $69.5 million or 29 cents in the comparable quarter last year. Excluding special items but including stock-based compensation expense, non-GAAP net income was $95.8 million or 44 cents per share compared with $95.0 million or 46 cents in the year-ago quarter.
Balance Sheet
The company ended the third quarter with cash and cash equivalents, and marketable securities balance of $806.5 million, up from $743.1 million in the prior quarter. Trade receivables were $321.3 million, up from $300.8 million in the prior quarter.
Cash flow from operations was $133.0 million versus $209.2 million in the prior quarter. Capex was $55.0 million versus $60.2 million in the prior quarter.
Guidance
Management provided guidance for the fourth quarter of 2014. Revenues are expected in the range of $305–$330 million, down 50.6% sequentially at the mid-point. The Zacks Consensus Estimate for revenues for the fourth quarter is pegged at $331.0 million. Non-GAAP earnings per share from continuing operations are expected in the range of 8 to 14 cents, lower than the Zacks Consensus Estimate of 17 cents. GAAP earnings are expected within (16 cents) to (11 cents) per share.
Conclusion
Teradyne’s third-quarter earnings beat the Zacks Consensus Estimate on stronger-than-expected revenues.
The company reported weak orders, indicating slowing demand for its products in the near future.
Though we remain optimistic about Teradyne over the long term given the popularity of its products, the LitePoint acquisition that strengthened its portfolio and continuous design win momentum, we expect the shares to remain under pressure due to weakness in key end markets.
Currently, Teradyne has a Zacks Rank #4 (Sell). Other stocks that have been performing well and are worth a look include Cognex Corporation (CGNX), Ambarella, Inc. (AMBA) and Avago Technologies Limited (AVGO). All these stocks sport a Zacks Rank #1 (Strong Buy).
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