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NXP (NXPI) Down 3.2% Since Last Earnings Report: Can It Rebound?

It has been about a month since the last earnings report for NXP Semiconductors (NXPI). Shares have lost about 3.2% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is NXP due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

NXP Q4 Earnings & Revenues Surpass Estimates

NXP Semiconductors reported fourth-quarter 2022 non-GAAP earnings of $3.73 per share, which outpaced the Zacks Consensus Estimate by 3.6%. Further, the figure increased 21.1% year over year.

Revenues of $3.31 billion surpassed the Zacks Consensus Estimate of $3.28 billion. The figure was up 9% from the year-ago period’s level. It also came within the management’s guided range of $3.2-$3.4 billion.

Top-line growth was driven by strong momentum across the Automotive, Mobile and Communication Infrastructure & Others end markets in the reported quarter.

End-Market Detail

Automotive generated $1.81 billion in revenues (54.5% of total revenues), reflecting a year-over-year increase of 17%. Growth was driven by innovation in systems solutions.

Revenues from Industrial & IoT were $605 million (18.3% of total revenues), down 8% from the prior-year quarter’s level. Softening demand environment in the IoT market was a headwind.

Revenues from Mobile were $408 million (12.3% of total revenues), up 9% from the year-ago period’s level. The increment in revenues was driven by an increased attach rate.

Communication Infrastructure & Others generated $494 million in revenues (14.9% of total revenues), up 8% year over year. The new cellular standards contributed well to segmental growth.

Operating Results

The non-GAAP gross margin was 58%, which expanded 70 basis points (bps) from the year-ago quarter’s level.

Research and development (R&D) expenses were $540 million, up 6.5% year over year. Selling, general and administrative (SG&A) expenses increased 1.6% year over year to $261 million. As a percentage of revenues, R&D expenses contracted 40 bps year over year to 16.3% and SG&A expenses contracted 50 bps year over year to 7.9%.

The non-GAAP operating margin of 36.5% for the reported quarter expanded 160 bps from the prior-year period’s figure.

Balance Sheet & Cash Flow

As of Dec 31, 2022, cash and cash equivalent balance was $3.84 billion, up from $3.76 million as of Oct 2, 2022.

Inventories were $1.78 billion at the end of the fourth quarter of 2022, up from $1.58 billion at the end of third-quarter 2022. Accounts receivables decreased to $960 million from $1.01 billion in the previous quarter.

Long-term debt was $11.165 billion at the end of the quarter under review compared with $11.162 billion at the end of the last-reported quarter.

NXPI generated a cash flow of $1.08 billion in the fourth quarter of 2022, down from $1.14 billion in the previous quarter.

The company’s capex investment stood at $233 million in the reported quarter. NXPI generated a free cash flow of $843 million in the fourth quarter.

During the fourth quarter, the company repurchased shares worth $475 million and made dividend payments of $221 million.

Guidance

For first-quarter 2023, NXP Semiconductors expects revenues of $2.9-$3.1 billion, suggesting a decline of 8-1% from the year-ago quarter’s reported figure.

Further, it expects a non-GAAP gross margin between 57.5% and 58.5%. The non-GAAP operating margin is anticipated to be between 33.4% and 35.3%.

The company anticipates non-GAAP earnings within the range of $2.82-$3.22 per share. The Zacks Consensus Estimate for the same is pegged at $3.09 per share.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended downward during the past month.

VGM Scores

Currently, NXP has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. However, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, NXP has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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