Key Points
Intel beat on earnings last night, with its best sales performance in 15 years.
Pro forma profits came in at twice the level Wall Street expected.
And free cash flow is positive again.
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Intel (NASDAQ: INTC) stock dropped 4% through 1:25 p.m. ET Friday after reporting Q2 earnings last night. But here's the thing: Intel's news seemed pretty good.
Heading into the report, analysts expected Intel to earn $0.21 per share (pro forma) on sales of $14.3 billion. Intel actually earned twice what it was expected to -- $0.42 per share. Its sales also topped estimates at $16.1 billion.
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Image source: Intel.
Intel Q2 earnings
Intel grew its sales 25% year over year, the company's best performance in nearly 15 years. Earnings news was more mixed.
On the one hand, Intel beat estimates by 2x. On the other hand, these were only non-GAAP earnings -- not earnings calculated under generally accepted accounting principles (GAAP). When calculated under GAAP, Intel didn't earn a profit at all; it lost $2.16 per share, a result significantly worse than many investors may have expected after hearing Intel "beat earnings."
That's reason No. 1 why Intel stock might be down today.
Was Intel's news good or bad?
Despite the GAAP loss, Intel's showing signs of improvement. Intel CEO Lip-Bu Tan says, "AI is driving unprecedented demand for compute" and improving margins. Gross profit margin for the quarter surged nearly 13 full percentage points to 40.4%, and GAAP operating margins flipped from negative to positive (11.1%).
That wasn't enough to produce a GAAP profit, but when turning to guidance, Intel confirmed that gross margins are continuing to improve, and should hit 41% in Q3, helping to deliver a GAAP profit of perhaps $0.31 per share this current quarter.
Best of all, free cash flow has turned positive again, with Intel reporting cash profits of $1.9 billion in Q2. Analysts are still predicting Intel will burn cash this year, but if Intel proves them wrong about that -- look out above!
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Rich Smith has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Intel. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
