Maxim (MXIM) Beats Q4 Earnings Estimates, Misses On Revenues

Maxim Integrated Products, Inc. (NASDAQ:MXIM) reported fourth-quarter fiscal 2017 adjusted earnings of 63 cents per share, ahead of the Zacks Consensus Estimate by a penny. Also, earnings were up 28.1% from the year-ago quarter.

Following the results, share price was up 1.55%, driven by strong growth in automotive and industrial markets and greater-than-expected profitability.

Also, shares of Maxim have returned 24.03% year to date, outperforming the industry’s gain of 19.21%.

Revenue

Revenues of $602 million were up 3.6% sequentially and 6.3% year over year. The increase was driven by major strength in the automotive and industrial end markets.

The top line was within the company’s guidance range of $590–$630 million and came below the Zacks Consensus Estimate of $608 million.

Revenues by End Market

The revenue mix in terms of major markets is discussed below.

Industrial end market remained the largest revenue contributor, accounting for approximately 29%. The segment’s revenues were up sequentially and year over year. The increase was driven primarily by factory automation products in the areas of interface and power management.

Consumer, Maxim’s second-largest segment, generated 25% of the revenues, flat sequentially due to lower-than-expected shipments, partially offset by improved diversification and wearables, gaming and peripherals.

The Communications and Data Center end market accounted for 21% of revenues, flat sequentially but increasing from the year-ago quarter. The year-over-year increase was driven by growth in data center with strong customer adoption of 100G optical products used in high-speed data center applications. The company also witnessed sequential growth in the communications infrastructure as well.

The Automotive end market also generated 20% of revenues, increasing sequentially. The increase was driven by growth in infotainment content. The power management products for infotainment applications helped in strengthening customer relationships in automotive and earning new design wins.

The Computing business contributed the remaining 5%.

Margins

The non-GAAP gross margin was 67.2%, up 201 basis points (bps) sequentially and 312 bps year over year. The increase was due to higher revenues and a favorable mix.

Non-GAAP operating expenses of $189.1 million increased 1.1% sequentially and 2.3% year over year. The increase resulted from higher employee profit sharing.

Pro forma operating margin was 35.8%, up 279 bps sequentially and 437 bps year over year.

Net Income

GAAP net income was $163.3 million compared with $140.2 million in the last quarter and $92.3 million a year ago.

Pro forma net income was $179.9 million compared with $159.8 million in the last quarter and $140.5 million a year ago. Our pro forma calculation excludes restructuring, intangibles amortization, asset impairments and other one-time charges on a tax-adjusted basis.

Maxim Integrated Products, Inc. Price, Consensus and EPS Surprise

Maxim Integrated Products, Inc. Price, Consensus and EPS Surprise | Maxim Integrated Products, Inc. Quote

Balance Sheet & Cash Flow

During the reported quarter, cash flow from operations was $237 million compared with $221 million in the earlier quarter. Important usages of cash in the quarter included $13 million on capex, $76 million for share repurchases and $93 million paid as dividends.

Total cash, cash equivalents and short-term investments were $2.74 billion in the fiscal fourth quarter, up from $2.16 billion in the earlier quarter.

Dividend & Share Repurchase

During the quarter, the company’s Board of Directors approved a 9% increase in the quarterly dividend. The dividend will be paid on September 14, 2017 to stockholders of record as of August 31, 2017.

Also, the company authorized a new share-repurchase program of $1 billion.

1Q Guidance

For the fiscal first quarter, Maxim expects revenues in the range of $555–$595 million based on a quarter-end backlog of $389 million. The Zacks Consensus Estimate is pegged at $595.6 million.

Gross margin is expected in the range of 65–68% on an adjusted basis (excluding special items). Earnings per share are expected in the range of 52–58 cents on an adjusted basis. The Zacks Consensus Estimate stands at 58 cents.

Going Forward

Maxim delivered decent fiscal fourth-quarter 2017 results with earnings exceeding the Zacks Consensus Estimate, while revenues missing the same.

For the upcoming fiscal fourth quarter, the company expects the automotive market to be in low teens from the year-ago quarter. The industrial market will be down sequentially but up from the year-ago quarter, driven by strength from factory automation content. Also, the Communications and Data Center market is likely to be down in the upcoming quarter. However, Consumer revenue is expected to be up in the September quarter, driven by strong growth in wearables, tablets, peripherals and gaming products.

Maxim remains financially strong with convincing margin expansion opportunities through its cost-saving initiatives and R&D focus on high-return investments.

The company is expanding its manufacturing footprint to enhance flexibility and profitability, while lowering capital expenditure. Management also plans to optimize product lines and organization for better returns on R&D investments. These efforts are likely to enable Maxim in improving future utilization rates, reducing costs and improving gross margin performance.

Maxim is shifting to advanced node process technology development through a recent collaboration with its foundry partners. Products launched under this initiative should expand margins.

Zacks Rank & Stocks to Consider

Currently, Maxim carries a Zacks Rank #3 (Hold). A few other stocks worth considering in the industry are Alibaba Group Holding Limited (NYSE:BABA) and MaxLinear (NYSE:MXL) , carrying a Zacks Rank #1 (Strong Buy), while Microchip Technology (NASDAQ:MCHP) carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Alibaba Group Holding Limited delivered a positive earnings surprise of 20.53%, on average, in the trailing four quarters.

MaxLinear, Inc. delivered a positive earnings surprise of 14.59%, on average, in the last four quarters.

Microchip Technology Incorporated delivered a positive earnings surprise of 12.88%, on average, in the trailing four quarters.

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