Linear Technology Corp. LLTC reported first-quarter fiscal 2016 earnings of 46 cents, which were in line with the Zacks Consensus Estimate.
Linear’s share price gained 3.96% in the after-trading hours as a few analysts consider the company’s second-quarter guidance to be better than their expectations of a 4% decline
Revenues
Linear reported revenues of $341.9 million, down 7.9% year over year and 9.9% sequentially. Also, revenues were at the lower end of the guidance range but missed the Zacks Consensus Estimate of $343.0 million due to lower-than-expected bookings.
Revenues declined in all the major geographies. In terms of end markets, the Industrial market suffered the maximum decline, followed by Communications and Transportation. However, the Computer market improved slightly.
Margins
Gross margin was 75.1%, down 98 basis points (bps) sequentially and 93 bps year over year.
Operating expenses of $106.8 million were down 4.7% sequentially and 0.8% year over year. As a percentage of sales, both R&D and selling, general and administrative (SG&A) expenses increased marginally. As a result, operating margin of 43.8% was down 268 bps sequentially and 314 bps year over year.
GAAP net income was $112.0 million or 46 cents per share compared with $132.7 million or 54 cents in the previous quarter and $129.5 million or 53 cents a year ago. As there were no one-time items, pro-forma earnings were also 46 cents, down from 53 cents last year.
Balance Sheet
Linear exited the quarter with cash, cash equivalents and marketable securities of approximately $1.24 billion as against $1.20 billion in the prior quarter. Account receivables were $153.7 million, down from $179.3 million in the fourth quarter.
Linear generated $175.7 million from cash for operations, spending $10.2 million on capital expenditures. Free cash flow was $165.5 million in the last quarter. The company spent $56.6 million on share purchases and $129.9 million on dividends.
Guidance
Management provided weak guidance for the second quarter of fiscal 2016. The company expects revenues to be flat to up 3% sequentially due to weakness in the industrial market and a cautious macroeconomic environment. The Zacks Consensus Estimate is pegged at $341.0 million.
Conclusion
Linear Technology reported a weak quarter with earnings coming in line with but revenues missing our expectations. The company’s business is well-diversified among core markets, such as industrial, automotive and communications infrastructure.
The soft revenue guidance reflects weakness in its end markets and volatility in the semiconductor space.
Nevertheless, Linear has an impressive record of returning cash to shareholders through dividends and share buybacks, which should increase investors’ confidence, in our view.
Linear carries a Zacks Rank #4 (Sell). Some stocks that are worth a look in the same space are Inphi Corp. IPHI, MaxLinear, Inc. MXL and Ixia XXIA. While Inphi sports a Zacks Rank #1 (Strong Buy), MaxLinear and Ixia carry a Zacks Rank #2 (Buy).
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