Analog Devices (ADI) Q2 Earnings And Revenues Top Estimates

Analog Devices Inc. (NASDAQ:ADI) reported second-quarter fiscal 2017 adjusted earnings of $1.03 per share, which beat the Zacks Consensus Estimate of 85 cents. Adjusted earnings per share (EPS) exclude one-time items but include stock-based compensation expenses.

The better-than-expected results were driven by strength across all the markets - industrial, automotive, consumer and communications, and the company’s increased focus on innovation and operational execution.

Analog Devices has completed the acquisition of Linear Technology (NASDAQ:LLTC). The merger of these two companies is expected to create an analog industry leader across a huge range of products, customer breadth and scale.

The deal will significantly expand Analog Devices' total addressable market allowing it to cater to phenomenal demand in some of the most attractive markets such as industrial, automotive and communications infrastructure markets.

We note that shares of Analog Devices have outperformed the Zacks Semiconductor-Analog and Mixed industry in the last one year. The stock returned 49.9%, while the industry gained 35.5%. While its investments are aimed at strengthening the product line and countering increasing competition, the policy of returning cash through dividends and share buybacks will ensure investor loyalty.

Let’s delve deeper into the numbers.

Revenues

Analog Devices generated revenues of $1.15 billion, up 16.6% sequentially and 47.4% year over year. The year-over-year increase was attributable to improved performance across all the markets.

Analog Devices, Inc. Revenue (TTM)

Moreover, revenues exceeded the company’s guidance range of $870 - $950 million. It also surpassed the Zacks Consensus Estimate of $1.09 billion.

Revenues by End Markets

The Industrial market generated 46% of Analog Devices’ total revenue (up 15% sequentially and 20% year over year). This represents a diversified market for the company, including industrial automation, instrumentation, energy, defense and health care segments.

Communications generated 18% of total revenue, up 5% sequentially and 4% year over year.

The Automotive segment generated around 15% of Analog Devices’ second-quarter revenues, up 8% sequentially and 9% year over year.

The Consumer segment, which Analog Devices clubs with its computing and handset businesses, decreased 24% sequentially but was up a massive 156% year over year. It accounted for 21% of total revenue.

Margins

Pro-forma gross margin was 69.3%, up 320 basis points (bps) sequentially and 350 bps year over year.

Analog Devices reported adjusted operating expenses of $380 million, up 24% sequentially and 39.5% year over year. Pro-forma operating margin of 37.9% was up 290 bps sequentially and 710 bps year over year.

Balance Sheet

Analog Devices exited the second quarter with cash and short-term investments of approximately $6.2 billion, slightly down from $6.3 billion in the prior quarter. Accounts receivables were $630.4 million, up from $472.5 million in the previous quarter. Long-term debt was approximately $8.6 billion.

Net cash flow from operations was around $521.5 million. Analog Devices spent $23.9 million on share repurchases and $139.3 million on cash dividends during the first quarter.

Guidance

For the third quarter of fiscal 2017, management expects non-GAAP revenues in the range of $1.37 billion to $1.45 billion, better than the Zacks Consensus Estimate of $1.35 billion.

On a non-GAAP basis, the company estimates gross margin of approximately 69% to 70%. Operating expenses are expected to be somewhere between $430 million to $440 million.

Analog Devices expects interest and other expense of approximately $70 million, tax rate of approximately 10% and earnings per share in the range of $1.07 to $1.21. The Zacks Consensus Estimate is pegged at $1.05.

Zacks Rank and Stocks to Consider

Currently, Analog Devices is a Zacks Rank #3 (Hold) stock. Better-ranked stocks in the broader technology sector includes Lam Research Corporation (NASDAQ:LRCX) , Teradyne, Inc. (NYSE:TER) and TiVo Corporation (NASDAQ:TIVO) , each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term expected earnings per share growth rates for Lam Research, Tivo and Teradyne are 16.44%, 10% and 9.99%, respectively.

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