Analog Devices exceeded market analysts’ earnings expectations in FQ3

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Analog Device is withdrawing its FQ2 outlook amid the coronavirus pandemic.
Image: Analog Devices

Analog Devices, Inc. (ADI) posted fiscal third-quarter earnings that exceeded Wall Street’s expectations earlier this week. The manufacturer experienced growth in its core businesses that offset declines in its other segments. The firm also shared a positive outlook for the fiscal fourth quarter and a very bright long-term forecast.

ADI’s Better-Than-Expected FQ3 Earnings

Last quarter, ADI generated $1.456 billion in revenue with adjusted earnings per share (EPS) of $1.36. As such, the company recorded an annual profit increase for the first time in 18 months. Investor’s Business Daily notes market watchers underestimated the firm and predicted it would report sales of $1.43 billion against adjusted EPS of $1.28.

The components maker also sold itself short as it forecast revenue of $1.317 billion and $1.08 in adjusted profit for the July period.

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ADI’s improved financial performance is due to year-over-year upticks in its industrial (3 percent) and communication (14 percent) sales. Unfortunately, the coronavirus pandemic’s impact on the economy resulted in a contraction of the firm’s automotive (-29 percent) and consumer (-13 percent) segments from 2019.

ADIs Robust Long-Term Prospects

The chipmaker estimates it will make $1.44 billion, plus or minus $70 million, with adjusted EPS of $1.32, plus or minus $0.10, in FQ4. The firm’s projections indicate flat revenue but earnings growth of 10.92 percent from last year. Market analysts still doubt the manufacturer’s potential and pegged its current period financial performance at $1.41 billion against $1.24 in adjusted EPS.

In a market analyst call, CFO Prashanth Mahendra-Rajah disclosed his company’s FQ4 guidance incorporates the U.S. Commerce Department’s new semiconductor export controls. However, the executive explained ADI’s inability to continue selling components to Huawei would have a minimal impact on its business.

Looking forward, CEO Vincent Roche struck a positive tone about his firm’s recently announced $21 billion acquisition of Maxim Integrated. He explained the merger would create new long-term cost savings for his brand and open up new addressable markets. During a recent appearance on CNBC’s “Mad Money,” Roche specified the automobile industry is his company’s next big target market.

The executive noted large quantities of semiconductors would be required to launch new features like vehicle electrification, self-driving capability, and infotainment cockpit deployments. Roche asserted ADI would see significant long-term growth by enabling that transition.

Immediately after the coronavirus outbreak reached pandemic proportions, the global auto industry plummeted due to self-quarantine mandates and economic insecurity. However, the world’s largest vehicle market is already showing signs it is recovering from the global health crisis. With consumers responding very favorably to post fossil fuel powered cars, Roche’s comments about ADI’s future are credible.

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