Analog Devices (ADI) Tops Q4 Earnings And Revenue Estimates

Analog Devices Inc. (NASDAQ:ADI) reported better-than-expected fiscal fourth-quarter 2017 results.

Adjusted earnings of $1.45 per share beat the Zacks Consensus Estimate by 8 cents and came ahead of the guided range of $1.29 to $1.43 per share. Earnings were up 15.1% sequentially and 38.1% year over year.

Revenues of $1.54 billion beat the consensus mark by $37 million and came close to the higher end of the guided range of $1.45 billion to $1.55 billion. Revenues surged 7.5% sequentially and a massive 53.6% year over year.

The better-than-expected results were driven by strength across all the markets — industrial, automotive, consumer and communications. Concurrent with the release of quarterly results, the company declared a quarterly cash dividend of 45 cents per share, translating into annual dividend of $1.80. The dividend is payable on Dec 12, 2017 to all shareholders of record as of Dec 1, 2017.

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.

Analog Devices stock has gained 28.2% year to date, slightly underperforming the 28.8% rally of the industry it belongs to.

Let’s delve deeper into the numbers.

Revenues by End Markets

The Industrial market generated 47% of Analog Devices’ total revenues (up 3% sequentially and 82% 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 revenues, up 7% sequentially and 58% year over year. The Automotive segment generated around 15% of Analog Devices’ fourth-quarter revenues, up 3% sequentially and 66% year over year. The Consumer segment increased 24% sequentially and 6% year over year. It accounted for 20% of total revenues.

Analog Devices, Inc. Revenue (TTM)

Margins and Net Income

Non-GAAP gross margin was 70.9%, up 40 basis points (bps) sequentially and 430 bps year over year.

Analog Devices reported adjusted operating expenses of $435 million, down slightly sequentially but up 51.8% year over year. Non-GAAP operating margin of 42.6% was up 210 bps sequentially and 450 bps year over year.

On a GAAP basis, Analog Devices recorded net profit of $347.7 million or 93 cents compared with $296.2 million or 95 cents in the year-ago quarter.

Balance Sheet

Analog Devices exited the fourth quarter with cash and short-term investments of approximately $1 billion, up from $908.6 million in the prior quarter. Accounts receivables were $689 million, down from $692.6 million in the previous quarter. Long-term debt was approximately $7.6 billion.

Net cash provided by operations was around $695.8 million. Analog Devices spent about $10.6 million on share repurchases and $166.9 million on cash dividends during the fourth quarter.

Guidance

For fiscal first quarter of 2018, management expects revenues in the range of $1.44 billion to $1.54 billion, better than the Zacks Consensus Estimate of $1.46 billion at the mid-point.

On a non-GAAP basis, the company estimates gross margin of approximately 70.5% to 71.0%. Operating expenses are expected to be between $440 million and $450 million.

Analog Devices expects interest and other expense of approximately $65 million and tax rate of approximately 12%. Earnings per share are expected in the range of $1.20 to $1.36, better than the Zacks Consensus Estimate of $1.17.

Zacks Rank & Other Stocks to Consider

Analog Devices holds a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Other top-ranked stocks in the broader technology sector include Activision Blizzard (NASDAQ:ATVI) , Applied Materials (NASDAQ:AMAT) and Alibaba (NYSE:BABA) , each carrying the same Zacks Rank as Analog Devices.

Long-term earnings per share growth rate for Activision, Applied Materials and Alibaba is projected to be 13.8%, 16.9% and 30.7%, respectively.

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