Teradyne Inc. (TER) reported fourth-quarter 2014 earnings of 14 cents per share, beating the Zacks Consensus Estimate by a couple of cents. Adjusted earnings per share exclude one-time items but include stock-based compensation expense.
Revenues
Revenues of $323.0 million were down 32% sequentially but up 13.3% year over year. Revenues beat the Zacks Consensus Estimate of $319 million and came in toward the higher end of management’s guided range of $305–$330 million.
Approximately 73% of revenues came from semiconductor testing platforms, 14% from system testing and the remaining 13% from wireless testing business.
Bookings
Total orders amounted to $332.0 million, up 21% sequentially. Specifically, on a sequential basis, Semiconductor Test orders were up 11% to $226.0 million, Systems Test Group orders soared 139% to $67 million, while Wireless Test orders declined 7% to $39.0 million.
Margins
Reported gross margin was 49.6%, down 500 basis points (bps) sequentially and 640 bps year over year. The decrease was due to lower revenues and an unfavorable mix.
Total operating expenses of $170.3 million were up 27% from $134.1 million in the year-ago quarter. Both engineering & development (E&D) and selling & administrative (S&A) expenses increased as a percentage of sales. As a result, the reported operating margin came in at (39%) versus 2.4% in the year-ago quarter.
GAAP net loss was $103.8 million or loss of 48 cents per share, down from net income of $22.3 million or earnings of 9 cents in the comparable quarter last year. Excluding special items but including stock-based compensation expense, non-GAAP net income was $31.1 million or 14 cents per share compared with $13.3 million or 7 cents in the year-ago quarter.
Balance Sheet
The company ended the quarter with cash and cash equivalents and marketable securities balance of $828.0 million, up from $806.5 million in the prior quarter. Trade receivables were $151.0 million, down from $321.3 million in the last quarter.
Cash flow from operations was $179.4 million versus $133.0 million in the earlier quarter. Capex was $24.0 million versus $55.0 million in the previous quarter.
Share Repurchase/Dividend
Teradyne approved a share repurchase program during the quarter authorizing the repurchase of up to $500 million stock through open market or private transactions. The new program replaces the existing one announced in 2010.
Also, the company declared a quarterly cash dividend of 6 cents per share, payable on Mar 24, 2015 to shareholders of record as of the close of business on Feb 27.
Guidance
Management provided guidance for the first quarter of 2015. Revenues are expected in the range of $320 million–$345 million, up 2% sequentially at the mid-point. The Zacks Consensus Estimate is pegged at $365.0 million.
Non-GAAP earnings per share from continuing operations are expected in the range of 9 to 14 cents, lower than the Zacks Consensus Estimate of 15 cents. GAAP earnings are expected within 7 to 11 cents per share.
Conclusion
Teradyne’s fourth-quarter earnings beat the Zacks Consensus Estimate backed by stronger-than-expected revenues.
The company reported strong orders, indicating improving 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 and continuous design win momentum, we expect the weakness in key end markets to keep the shares under pressure.
Currently, Teradyne has a Zacks Rank #4 (Sell). Some better-ranked companies in the same space 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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