LSI Beats on Q1 Earnings - Analyst Blog

Share of LSI Corporation LSI hovered around its acquisition price of $11.15 per share since the company announced its first-quarter of 2014 results on April 23. Avago Technologies AVGO agreed to acquire LSI in Dec 2013 for approximately $6.6 billion or $11.15 per share and the deal is expected to close in May.

LSI's first quarter adjusted earnings per share (excluding amortization, restructuring expenses but including stock-based compensation) came in at 14 cents in the reported quarter, which not only beat the Zacks Consensus Estimate of 13 cents but also increased 10.8% from the year-ago quarter.

Quarter Details

Although, LSI Corp.'s first-quarter revenues of $569.1 million increased 0.8% from the year-ago quarter, it lagged the Zacks Consensus Estimate of $582.0 million.

LSI Corp.'s adjusted gross margin (excluding amortization but including stock-based compensation) expanded 44 basis points (bps) from the year-ago quarter to 54.8%, primarily due to higher revenue and lower cost.

Adjusted operating margin (excluding amortization, restructuring expenses but including stock-based compensation) was 14.6%, up from 12.4% in the year-ago quarter, reflecting lower operating expenses. Operating expenses as a percentage of revenues were down from 42.0% in the year-ago quarter to 40.2%.

LSI Corp.'s adjusted net income (excluding amortization, restructuring expenses but including stock-based compensation) came in at $78.8 million or 14 cents compared with $68.5 million or 12 cents reported in the year-ago quarter.

LSI Corp. exited the quarter with cash and short-term investments of $883.3 million compared with $809.8 million in the previous quarter.

Cash from operating activities was $43.0 million compared with $134.2 million in the previous quarter.

The company neither purchased any stock nor paid any dividends to shareholders during the quarter owing to the acquisition.

Conclusion

LSI Corp. delivered mixed first-quarter results with earnings per share beating the Zacks Consensus Estimate but revenues missing the same. However, both increased on a year-over-year basis.

We believe that LSI was a potent acquisition target because of its broad range of products that enable it to serve a diverse clientele in the hard disk drive, server and networking end markets.

Moreover, LSI Corp. is gaining rapid traction in the growing PCIe flash adapter market segment, which is a big positive for the company.

LSI's association with Cisco CSCO in the networking space should positively impact the company. Popularity of the company's flash suites can be gauged from some high-value customer wins, namely Intel Corp. INTC, International Business Machines Corp. and Oracle, to name a few.

Currently, LSI Corp. carries a Zacks Rank #3 (Hold).