Linear Technology Beats on Q3 Earnings - Analyst Blog

Linear Technology Corp. LLTC reported third-quarter 2014 earnings of 50 cents, surpassing the Zacks Consensus Estimate by 4 cents.

Revenues

Linear reported revenues of $348.0 million, up 10.6% year over year and 4.0% sequentially. The increase was due to stronger sales across automotive, industrial and communications markets.

Book-to-bill ratio was positive in the quarter and bookings increased sequentially in all major markets, especially automotive, industrial and communications.

By end market, industrial continued to be the largest area, contributing 43% of the total third-quarter bookings. The communications market, automotive and consumer end market contributed 20%, 20% and 2%, respectively, of the total third-quarter bookings. Computer, however, accounted for 9%, flat with the last quarter.

Margins

Gross margin for the quarter was 75.7%, up 40 basis points (bps) sequentially and 90 bps from the year-ago quarter.

Operating expenses of $102.8 million were up 6.0% from the previous quarter's $97.0 million. Operating margin of 46.2% was up 100 bps sequentially and 220 bps year over year. As a percentage of sales,research and development (R&D) as well as selling, general and administrative (SG&A) expenses decreased.

The quarter's GAAP net income was $117.6 million or earnings of 48 cents per share compared to $104.8 million or 44 cents in the previous quarter and $111.0 million or 46 cents in the year-ago quarter. Excluding expenses related to debt discount amortization but including stock-based compensation expenses, pro-forma earnings per share were 50 cents, up from 45 cents in the previous quarter and 48 cents in the March quarter of 2013.

Balance Sheet

Linear exited the third quarter with cash, cash equivalents and marketable securities of approximately $1.76 billion versus $1.72 billion in the prior quarter. Account receivables were $182.0 million, up from $138.5 million in the prior quarter.

Management repurchased 242,000 shares worth $10.9 million.

Additionally, Linear approved cash dividend of 27 cents per share to be paid on May 28, 2014 to stockholders of record on May 16.

Guidance

Management provided limited guidance for the fourth quarter of fiscal 2014. The company expects improved bookings momentum in all the end markets in the fourth quarter, forecasting revenues to increase 2% to 6% sequentially.

Conclusion

The company reported a decent quarter, with the top line exceeding our expectations. The company's business is well-diversified among core markets, such as industrial, automotive and communications infrastructure. However, its computing business has been hit by weakness in the PC and notebook markets.

Management expects improved bookings momentum in all its end markets in the near term, indicating stronger revenues in the upcoming quarter.

However, uncertainty in its core industrial, communications infrastructure and automotive businesses will remain an overhang.

Linear carries a Zacks Rank #3 (Hold). Other better-performing stocks that are worth considering include Texas Instruments TXN, ADTRAN Inc. ADTN and Amazon.com Inc. AMZN. All these stocks enjoy a Zacks Rank #2 (Buy).