Texas Instruments (TXN) Beats On Q4 Earnings, Lags Revenues

Texas Instruments (NASDAQ:TXN) delivered fourth-quarter 2018 earnings of $1.27 per share, beating the Zacks Consensus Estimate of $1.24. The figure, which increased 16.5% year over year but decreased 19.6% sequentially, came within management’s guided range of $1.14-$1.34 per share.

The company reported revenues of $3.72 billion, down 1% from the year-ago quarter and 12.8% sequentially. The figure came within the guided range of $3.6-$3.9 billion.

However, the top line missed the Zacks Consensus Estimate of $3.75 billion in the reported quarter.

The top line was affected by the decline in the demand for the company’s products throughout the reported quarter. Moreover, weak performance of the embedded processing segment impacted fourth-quarter results.

Notably, shares of the company were down 1.17% in the after-hour trading session. This can primarily be attributed to weaker outlook for revenues compared with the figures in the reported quarter.

Coming to share price performance, Texas Instruments’ shares have lost 19.4% in the past 12-month period compared with its industry’s decline of 15.5%.

Quarter in Detail

The company continues to increase R&D investments, which remain a key catalyst for the expansion of its product portfolio.

Texas Instruments’ growing investments in automotive and industrial markets remained positive throughout the quarter.The company witnessed double-digit growth in the markets of automotive, industrial and enterprise systems during the reported quarter.

However, it did not perform well in the personal electronics market and consequently declined in low-single digits during the fourth quarter.

Segments in Detail

Analog: The segment generated $2.64 billion (accounting for 71% of its total revenues), which increased 4% from the year-ago quarter. This was driven by strong performance of power and signal chain product lines. Moreover, with the emergence of 5G technology, analog products gained traction during the fourth quarter. However, the segment was affected by weak performance of high-volume products.

Embedded Processing: This segment generated $791 million revenues (21% of total revenues), declining 12% year over year. This was primarily owing to weak performance of processors and connected microcontrollers during the reported quarter.

Other: Revenues in this segment were $288 million (8% of total revenues). The figure fell 10% from the year-ago quarter due to weak performing custom products.

Margins

Texas Instruments’ gross margin of 64.8% was down 30 basis points (bps) from the year-ago quarter.

Operating expenses of $814 million were up 2.3% from a year ago. Operating margin was 40.8%, down 90 bps from the year-ago quarter.

Balance Sheet and Cash Flow

Cash and short-term investments balance was $4.2 billion compared with $5.1 billion in the third quarter.

The company generated $2.1 billion in cash from operations, spending $323 million on capex, $2 billion on share repurchases and $736 million on cash dividends. Free cash flow at the end of the fourth quarter was $1.8 billion.

At the end of the quarter, it had a long-term debt of $4.3 billion, flat sequentially.

Guidance

The company provided guidance for the first quarter of 2019.

It expects revenues between $3.34 billion and $3.62 billion (down 6.5% sequentially at the midpoint of the guided range). The Zacks Consensus Estimate for first-quarter revenues is pegged at $3.61 billion.

Earnings for the quarter are expected in the range of $1.03-$1.21 per share. The Zacks Consensus Estimate for first-quarter earnings is pegged at $1.22. The guidance includes an estimated $20-million discrete tax benefit.

Zacks Rank & Stocks to Consider

Currently, Texas Instruments carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the broader computer and technology sector include SYNNEX Corporation (NYSE:SNX) , Twitter, Inc. (NYSE:TWTR) and Cloudera, Inc. (NYSE:CLDR) , each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The expected long-term earnings growth rate for SYNNEX, Twitter and Cloudera is 0.7%, 22.1% and 8%, respectively.

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