Micron Technology, Inc. reports preliminary financial results for the quarter ended August 31, 2014.
Micron Technology Inc. (NASDAQ:MU) just reported its preliminary financial results based on which we provide a unique corporate earnings release based analysis of its performance. Our analysis focuses on the company’s performance for the same quarterly period on a year-on-year basis (unless stated otherwise).
MU-US is one of the first companies amongst its peer group to announce earnings for this period.
Highlights
Summary numbers: Revenues of USD 4227 million, Net Earnings of USD 118 million and EPS of USD 0.96. Performance focus more on top-line than bottom-line: same period year-on-year revenue change of 48.68% vs. change in earnings of -93.09%.
EBITDA margins now 20.04% from 24.55%
Ability to strengthen the balance sheet? Year-on-year change in Operating Cash Flow of 87.87% better than change in earnings.
The table below shows the preliminary results and recent trends for key metrics such as revenues and net income (See complete table at the end of this report):
Revenue Growth Versus Earnings Growth
Companies sometimes focus on growing their top-line (Sales or Revenues) more than their bottom-line i.e. Earnings or Net Income. Investors should look at revenue growth to understand a company’s ability to grow its market share, and earnings growth to look at the company’s ability to generate returns. Comparing revenue growth to earnings growth helps understand a couple of items: (1) A company’s focus on gaining market share vs. generating profits and (2) How additive or dilutive the revenue performance has been to earnings.
MU-US’s year-on-year change in top line compared to the same period last year of 48.68% is better than its change in earnings which was -93.09%. The company’s performance this period suggests a focus on the top-line at the expense of bottom-line earnings. It remains to be seen how the rest of the peer group results turns out and if MU-US’s performance suggests any major shift in the composition of market share in this sector. Also, for comparison purposes, revenues changed by 6.15% and earnings by -85.36% compared to the immediate last quarter.
Earnings Growth Trend
The company’s year-on-year decline in earnings has been influenced by the following factors: (1) Decline in gross margins from 40.73% to 32.77% and (2) issues with cost controls. As a result, operating margins (EBITDA margins) went from 24.55% to 20.04% in this period. For comparison, gross margins were 47.97% and EBITDA margins 34.83% in the immediate last quarter.
Gross Margin Trend
Companies sometimes tradeoff for improvements in revenues and margins by extending friendlier terms to customers and vendors. One quick way to check against such activity is to compare the changes in gross margins with any changes in working capital. If the gross margins improved without a worsening of working capital, it is quite possible that the company’s performance is a result of truly delivering in the marketplace and not simply a prop up using the balance sheet.
The company’s decline in gross margins is offset by some improvements on the balance sheet side – working capital management shows progress. The company’s working capital days have gone down to 111.72 from 133.32 for the same period last year and suggets that the gross margin decline is not altogether bad.
Operating Cash Flow Growth Versus Earnings Growth
Companies often post earnings numbers that are influenced by non-cash activities. One way to gauge the quality of the declared earnings number is to judge the deviation in the growth in earnings from the growth in operating cash flows. In general, an earnings growth rate that is higher compared to the operating cash flow growth implies a higher proportion of non-operating and even one-time activities – such activities are typically not sustainable over long periods.
MU-US’s year-on-year change in Operating Cash Flow of 87.87% is better than its change in earnings suggesting some ability to strengthen the balance sheet.
Unusual Items
EPS Growth Compared To Earnings Growth
MU-US’s year-on-year change in Earnings per Share (EPS) of -36.42% is better than its change in earnings of -93.09%.
EPS Growth Rate History
The table below shows the preliminary results along with the recent trend for revenues, net income and other relevant metrics:
Company Profile
Micron Technology, Inc. provides semiconductor solutions. It manufactures and distributes semiconductor solutions such as dynamic random access memory, NAND flash memory; CMOS image sensors, other semiconductor components and memory modules. The company operates through four segments: NAND Solutions Group, DRAM Solutions Group, Wireless Solutions Group and Embedded Solutions Group. The NAND Solutions Group includes high volume NAND flash products sold into data storage, personal music players and portions of computing markets. The DRAM Solutions Group includes high volume Dynamic Random Access Memory products sold to the personal computer, consumer electronics, networking and server markets. The Wireless Solutions Group includes DRAM, NAND flash and NOR flash products, including multi-chip packages, sold to the mobile device market. The Embedded Solutions Group includes DRAM, NAND flash and NOR flash products sold into automotive and industrial applications, as well as NOR and NAND flash sold to consumer electronics, networking, personal computer and server markets. Micron Technology was founded in October 1978 and is headquartered in Boise, ID.
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