A month has gone by since the last earnings report for Cirrus Logic (CRUS). Shares have lost about 2.6% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Cirrus Logic due for a breakout? Before we dive into how investors and analysts have reacted as of late, let’s take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Cirrus Logic’s Q4 Earnings Beat Estimates, Up Y/Y
Cirrus Logic delivered better-than-expected fourth-quarter fiscal 2020 results. The company’s quarterly non-GAAP earnings per share of 68 cents outpaced the Zacks Consensus Estimate of 47 cents and surged approximately 84% year on year.
This year-over-year growth was mainly driven by higher revenues and reduced operating expenses. However, the company’s bottom-line results plummeted nearly 52% sequentially mainly due to lower revenues compared with the fiscal third-quarter figure.
Total revenues of $279.3 million also surpassed the Zacks Consensus Estimate of $263 million and improved 16% year over year as well. Increased component shipments in smartphones and digital headsets, along with higher content in smartphones and tablets, primarily drove the top line.
However, on a sequential basis, revenues declined 25% due to reduction in unit volumes for certain components shipping in smartphones. Nonetheless, increased volumes of boosted amplifiers and haptic drivers in Android, along with the production ramp-up for a recently-introduced tablet partially offset the sequential decline in top-line results.
Segment wise, portable audio product revenues (89% of total revenues) came in at $249.7 million, up 21% year over year. However, non-portable audio and other products (11%) decreased 11% to $29.6 million. Sequentially, product and non-portable audio and other products segments’ revenues slid 19% and 1%, respectively.
Cirrus Logic’s largest customer, apparently Apple, accounted for 75% of its sales for the reported quarter.
Profits & Margins
Non-GAAP gross profit of $146.3 million climbed 17% on a year-over-year basis. Non-GAAP gross margin expanded 40 basis points (bps) to 52.4%, chiefly driven by supply-chain efficiencies. Favorable product mix and cost reductions on certain products were also positives.
However, non-GAAP gross profit and margin declined sequentially 26% and 40 bps, respectively. The sequential decline mainly reflects higher allocated supply-chain costs on lower unit volumes.
Cirrus Logic’s non-GAAP operating expenses dropped 4% year over year to $98.7 million. Operating expenses also declined 4% sequentially.
Non-GAAP operating income of $47.6 million too surged 116% year on year. However, it declined approximately 50% sequentially. Non-GAAP operating margin of 17.1% expanded 790 bps from the year-ago quarter but shrunk 820 bps from the fiscal third quarter.
Balance Sheet and Cash Flow
The company exited the fiscal fourth quarter with cash and marketable securities of $314.1 million compared with the $355.4 million witnessed at the end of the prior quarter.
Accounts receivables were $154 million compared with $175.9 million recorded in the fiscal third quarter. Notably, the company did not have any long-term debt as of Mar 28, 2020.
Cash flow from operations was $49.3 million in the fiscal fourth quarter and $295.8 million for the full fiscal year. During the reported quarter and fiscal 2020, the company bought back stocks worth $50 million and $120 million, respectively. As of Mar 28, 2020, Cirrus Logic has $120 million remaining under its share-repurchase authorization.
Cirrus Logic believes it is well positioned to weather the coronavirus crisis and emerge stronger over the long run. The audio chip maker stated that with roughly $600 million in cash and no debt obligations, it is well poised to sail through this turbulence and keep banking on its growth opportunities.
The company didn’t provide any specific data regarding the pandemic’s impact on its quarterly results. However, it stated that its supply chain remained robust during these difficult times. Cirrus Logic noted that TSMC and Global Foundries are its main suppliers for wafers and both companies consistently met the production schedules despite the challenges. Therefore, the company did not expect any adverse impact on its supply chain.
Nonetheless, Cirrus Logic projects the pandemic to adversely impact smartphone volumes in the near term, thereby denting its operating results.
For the first quarter of fiscal 2021, the company projects revenues between $200 million and $250 million, indicating a decline of 19% sequentially and 5% year over year at the mid-point.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -60.71% due to these changes.
At this time, Cirrus Logic has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren’t focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. Notably, Cirrus Logic has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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