Maxim (MXIM) Beats Earnings and Revenue Estimates in Q2

Maxim Integrated Products, Inc. MXIM reported second-quarter fiscal 2018 adjusted earnings of 65 cents per share, surpassing the Zacks Consensus Estimate by a penny. Also, earnings increased 9% sequentially and 42% from the year-ago quarter.

Following fiscal-second quarter results on Jan 25, the share price is up 12%. The increase has been driven by strong growth in automotive and industrial markets.

Also, shares of Maxim have returned 38.7% in the last 12-months period, outperforming the industry’s growth of 29.1%.

Revenues

Revenues of $623 million increased 8.2% sequentially and 13% 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 $600-$640 million and came in above the Zacks Consensus Estimate of $620 million.

Revenues by End Market

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

The Industrial end market remained the largest revenue contributor, accounting for approximately 29%. The segment’s revenues increased year over year, driven primarily by factory automation products.

Consumer, Maxim’s second-largest segment, also generated 26% of the revenues, declining year over year. The decrease was due to weak demand for smart phones, partially offset by growth in broad-based consumer business in wearables, tablets, peripherals, and gaming products.

The Communications and Data Center end market accounted for 20% of the revenues, flat from the year-ago quarter. The robust growth of 100G optical products and 12-volt server power used in high-speed data center applications was offset by broad-based softness in communications infrastructure.

The Automotive end market generated 21% of revenues. The segment’s revenues grew in the double digits year over year. The increase was driven by growth in infotainment content. Power management products for infotainment applications helped in strengthening customer relationships in automotive and earning new design wins.

The Computing business contributed the remaining 4%.

Margins

Non-GAAP gross margin was 67.6%, up 70 basis points (bps) sequentially and 350 bps year over year. The increase was due to higher revenues, a favorable mix and strong operational execution.

Non-GAAP operating expenses of $201.2 million increased 10.4% year over year. The increase was due to an extra week included in the quarter. As a percentage of sales, research and development expenses decreased, while selling, general and administrative expenses increased.

Operating margin was 35.3%, up 430 bps year over year. The improvement was driven by revenue growth and manufacturing transformation.

Balance Sheet & Cash Flow

During the reported quarter, cash flow from operations was $229.9 million compared with $220 million in the earlier quarter. Important usages of cash in the quarter included $22.4 million on capex, $77 million for share repurchases and $101.4 million paid as dividends.

Total cash, cash equivalents and short-term investments were $2.82 billion in the fiscal second quarter, up from $2.77 billion in the earlier quarter.

3Q Guidance

For the fiscal third quarter, Maxim expects revenues in the range of $620-$660 million based on a quarter-end backlog of $446 million. The Zacks Consensus Estimate is pegged at $605.1 million.

Gross margin is expected in the range of 66-68% on an adjusted basis (excluding special items). Earnings per share are expected in the range of 66-72 cents on an adjusted basis. The Zacks Consensus Estimate stands at 68 cents.

Going Forward

For the upcoming fiscal third quarter, the company expects the automotive market to grow well above the seasonal, driven by continued growth in battery management system business. The industrial market will be up sequentially and from the year-ago quarter, driven by strength from factory automation content. Also, the Communications and Data Center market is likely to be up in the upcoming quarter. However, Consumer revenues are expected to increase in the March quarter, driven by above average peak shipments for smart phones.

Maxim’s automotive business has been growing lately. The company has invested heavily in vehicle-safety technology that could prove to be foundational for a driverless car future. During the fiscal second quarter, the company entered into a partnership with NVIDIA Corporation (NVDA) to support the latter’s DRIVE Pegasus as well as DRIVE Xavier for Level 4 driving platforms.

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.

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

 

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

Zacks Rank & Stocks to Consider

Maxim carries a Zacks Rank #3 (Hold). A few better-ranked stocks in the technology sector are Applied Materials AMAT, Teradyne, Inc. TER and Expedia EXPE, each sporting a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.

Long-term earnings per share growth rate for Applied Materials, Teradyne and Expedia is projected to be 12.7%, 12% and 16.4%, respectively.

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