Linear Technology Corp. (LLTC) reported second-quarter fiscal 2015 earnings of 51 cents, which beat the Zacks Consensus Estimate by a couple of cents. The results were aided by lower income tax rate, but partially offset by lower volumes.
Revenues
Linear reported revenues of $352.6 million, up 5.4% year over year but down 5% sequentially. Also, revenues were within the company’s guidance but missed the Zacks Consensus Estimate of $356.0 million.
Book-to-bill ratio was modestly positive, while bookings decreased slightly on a sequential basis. However, as the quarter progressed, bookings improved in all the end markets, especially the industrial market.
Margins
Gross margin was 75.4%, down 60 basis points (bps) sequentially but up 10 bps from the year-ago quarter.
Operating expenses of $107.6 million were up 6.7% from the year-ago quarter figure of $100.9 million. Operating margin of 44.9% was down 210 bps sequentially and 30 bps year over year. As a percentage of sales, research and development (R&D) expenses remained flat, while selling, general and administrative (SG&A) expenses increased.
GAAP net income was $123.6 million or 51 cents per share compared with $129.5 million or 53 cents in the previous quarter and $104.8 million or 44 cents in the year-ago quarter. As there were no one-time items, pro-forma earnings per share was also 51 cents, up from 44 cents in the year-ago quarter.
Balance Sheet
Linear exited the quarter with cash, cash equivalents and marketable securities of approximately $1.07 billion versus $1.03 billion in the prior quarter. Account receivables were $148.6 million, down from $175.5 million in the earlier quarter.
During the quarter, Linear generated $148.0 million from cash for operations, spending $16.2 million on capital expenditures. Free cash flow was $131.8 million in the last quarter. The company spent $34.7 million on share purchases and $65.8 million on dividends.
Additionally, Linear increased the quarterly dividend from 27 cents per share to 30 cents. The new dividend will be paid on Feb 25, 2015 to stockholders of record as on Feb 13.
Guidance
Management provided strong guidance for the third quarter of fiscal 2015. The company expects revenues to increase 4% to 7% sequentially. The Zacks Consensus Estimate for revenues is pegged at $370.0 million.
Conclusion
Linear Technology reported a decent quarter with the bottom line exceeding 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 strong revenue guidance for the next quarter reflecting better bookings momentum in the automotive and industrial markets and an improving macroeconomic global environment.
Moreover, Linear has an impressive record of returning cash to shareholders through dividends and share buybacks. The company has historically raised dividends, including the 11.1% increase in the reported quarter to 30 cents per share. We believe the continued share buybacks and dividend hikes will increase investors’ confidence.
Linear carries a Zacks Rank #3 (Hold). Other better-performing stocks that are worth considering include STMicroelectronics NV (STM), American Capital Agency Corp. (AGNC) and Intel (INTC). While STMicroelectronics and American Capital sport a Zacks Rank #1 (Strong Buy), Intel carries a Zacks Rank #2 (Buy).
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