Xilinx (XLNX) Down 6.2% Since Last Earnings Report: Can It Rebound?
A month has gone by since the last earnings report for Xilinx (XLNX). Shares have lost about 6.2% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Xilinx due for a breakout? 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.
Xilinx delivered first-quarter fiscal 2021 earnings of 65 cents per share, beating the Zacks Consensus Estimate of 63 cents. However, the bottom line comes in 33% lower than the prior-year quarter’s 97 cents.
Revenues of $727 million came in line with the Zacks Consensus Estimate but declined 17% year over year. The impact of the Huawei ban and other trade-related uncertainties, along with the pandemic’s adverse impact on the business, hurt the top line.
The company witnessed improved chip demand across Data Center Group (DCG), Wired and Wireless Group (WWG), and the Industrials markets. However, demand from Automotive and Broadcast businesses remained weak through the quarter.
Quarter in Detail
Product wise, advanced product revenues declined 16% year over year, contributing 68% to total revenues. Revenues from core products (32% of total revenues) also decreased 12% from the year-ago quarter.
During the quarter, the company recorded a 7% decline in Zynq product-based revenues primarily due to lower Zynq sales in the automotive businesses.
On the basis of end markets, A&D, Industrial and TME (AIT) revenues (45% of total revenues) dipped 2% on a year-over-year basis. The decline was mainly due to rescheduling of some customer program in the second quarter.
Automotive, Broadcast and Consumer group (ABC) (12% of total revenues) slipped 29% year over year. The automotive business suffered steep decline in auto sales and witnessed factory shutdowns due to the pandemic.
WWG revenues (33% of total revenues) dropped 33% year over year. The segment’s sales were adversely impacted by trade restrictions on Huawei.
DCG revenues (12% of total) surged 104% from the year-ago period, primarily owing to contributions from compute acceleration, driven by a mix of cloud and high-performance compute customers. Notable contribution from a hyperscaler deployment of its FPGA-based SmartNIC was a tailwind.
Geographically, the company registered a year-over-year decrease of 6% in North America, 9% in the Asia Pacific, 18% in Japan and 39% in Europe.
Non-GAAP gross margin came in at 69%, up 240 basis points (bps) year over year. It also came within the company’s guided range of 68-70%.
Non-GAAP OpEx was $314 million, slightly above the company’s guidance of $307-$311 million due to increased variable compensation.
The company posted non-GAAP operating income of $186.6 million, down 28.2% year over year. Operating margin contracted 460 bps to 26% as benefit of higher gross margin was offset by elevated operating expenses.
Balance Sheet and Cash Flow
Xilinx exited the fiscal first quarter with cash, cash equivalents and short-term investments of approximately $3 billion compared with the prior quarter’s $2.27 billion sequentially.
The company’s total long-term debt increased to $1.49 billion as of Jun 27, from $747.1 million as of Mar 28. This upswing reflects senior notes issuance of $750 million in May.
Xilinx generated $245 million of cash from operations compared with the previous quarter’s $345 million. The company generated free cash flow of $230 million compared with the $313 million witnessed in the last quarter.
During the fiscal first quarter, the company repurchased 0.7 million shares at an average price of $78 per share and paid out dividends worth $92 million.
For the second quarter of fiscal 2021, the company expects revenues between $730 million and $780 million.
In the earnings call, management predicted its WWG revenues to decline sequentially in the fiscal second quarter due to digestion of CIV accelerated orders. Additionally, it projects sales at DCG to remain flat or marginally decline on a sequential basis.
Nonetheless, the company anticipates solid sequential recovery in its AIT segment, led by the TME and A&D businesses. Xilinx also expects recovery across the automotive and broadcast markets.
Gross margin is forecast to be 69.5-72.5%. Operating expenses are projected at $322-$336 million for the fiscal second quarter.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in estimates review. The consensus estimate has shifted 14.41% due to these changes.
At this time, Xilinx has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with an F. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Xilinx has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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