A month has gone by since the last earnings report for Skyworks Solutions, Inc.SWKS . Shares have added about 7% in that time frame, outperforming the market.
Will the recent positive trend continue leading up to its next earnings release, or is SWKS due for a pullback? 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 drivers.
Skyworks reported first-quarter fiscal 2018 non-GAAP earnings of $2.00 per share, which beat the Zacks Consensus Estimate by 9 cents. The figure improved 24.2% from the year-ago quarter and 9.9% on a sequential basis. The increase was driven by better-than-expected worldwide demand for its wireless communications engines.
Revenues of $1.051 billion were up 15% year over year and 6.8% sequentially. The reported figure matched the Zacks Consensus Estimate.
The strong results reflected Skyworks' growing clout in the connectivity solutions and 5G markets. Meanwhile, the company's solutions continue to capture strategic design wins across the broad markets.
Additionally, the emergence of connected homes, autonomous vehicles, artificial intelligence (AI), augmented reality, wearables and network infrastructure presents significant growth opportunity for Skyworks' connectivity solutions.
Key Growth Drivers
Across broad markets, the company delivered fully-integrated Zigbee and Bluetooth devices for Nest's portfolio of residential alarms.
Skyworks provided connectivity solutions for Alphabet Home Max wireless speakers. Also, it initiated volume production of AEC-Q100 grade modules to European-based auto manufacturers
The company supported NetGear's Orbi Wi-Fi system for outdoor mesh networks as well. It also unveiled LTE-Cat 1 engines featuring Amazon.com Inc.'s Kindle Oasis e-readers.
Moreover, Skyworks launched integrated wireless networking engines SkyOneWi-Fi solutions, enabling a fourfold increase in speed for users. It too unveiled high-power solutions with leading base station customers for 5G MIMO deployments.
In the reported quarter, Skyworks also launched a new suit of network-driven solution that supports wireless 5G networks, called Sky5. Notably, Sky5 solution is a platform that deals with revolutionary 5G applications. This apart, the company Partnered with XY Findables to aid advanced tracking devices.
Skyworks' supported most of the major mobile manufacturers in the quarter including Samsung, Huawei, Oppo, Vivo, Xiaomi and Motorola.
Non-GAAP gross margin increased 20 basis points (bps) on a year-over-year basis and expanded 40 basis points (bps) sequentially to 51.4%.
Research & development (R&D) expenses, as percentage of revenues, increased 40 bps year and came in at 9.3%. On the contrary, selling, general & administrative (SG&A) expenses declined 70 bps from the year ago to 4.9%.
As a result, non-GAAP operating margin increased 60 bps on a year-over-year basis and 90 bps sequentially to 39.4% in the reported quarter.
Balance Sheet & Cash Flow
As of Dec 29, 2017, cash & cash equivalents were $1.68 billion compared with $1.62 billion in the previous quarter. Cash flow from operating activities was $360.8 million compared with $495.9 million in the year-ago quarter.
The company declared a cash dividend of 32 cents per share in the first quarter, payable on Mar 15, 2018. It paid dividend of $59 million and repurchased 1.7 million shares for a total of $173 million.
Skyworks also authorized a new share repurchase program of up to $1 billion of its common stock in the quarter.
For second-quarter fiscal 2018, revenues are expected to increase 6-8% year over year at its mid-point of $910 million. The mid-point figure is anticipated to miss the Zacks Consensus Estimate of $946.1 million.
Non-GAAP earnings are anticipated to be $1.60 per share, up 10% on a year-over-year basis. The Zacks Consensus Estimate is currently pegged at $1.63.
Gross margin is expected in the range of 50.5-51% while operating expenses are likely to come in at $131 million. Gross margins are anticipated to benefit from higher revenues and unit volumes, improving operating efficiency and filter in-sourcing.
The company targets to return cash to shareholders in the range of 60% to 75%, up from the previous guided range of 40% to 50%.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates. There has been one revision higher for the current quarter compared to four lower.
Skyworks Solutions, Inc. Price and Consensus
At this time, SWKS has an average Growth Score of C, a grade with the same score on the momentum front. Following the exact same course, the stock was also allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Based on our scores, the stock is equally suitable for value, growth and momentum investors.
Estimates have been broadly trending downward for the stock and the magnitude of these revisions indicates a downward shift. Interestingly, SWKS has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.