Why has analog devices (ADI) declined 2.2% since the last earnings report?

About a month has passed since Analog Devices (ADI) last reported earnings. Shares have lost about 2.2% in that time, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Analog Devices due for a breakout? Before we dive into how investors and analysts have reacted as of late, let’s take a quick look at the most recent earnings report in order to get a better handle on the key drivers.

Second-quarter analog earnings beat estimates

Analog Devices reported fiscal second-quarter 2024 adjusted earnings of $1.40 per share, which was 11.1% ahead of the Zacks Consensus Estimate. The financial result decreased by 51% compared to the same quarter last year.

Revenues of $2.16 billion surpassed the Zacks Consensus Estimate of $2.10 billion. Revenues were down 34% compared to the same quarter last year.

The main downside was softness in the telecommunications, consumer, automotive and industrial end markets.

Revenue by end market

Industrial: The market generated revenue of $1.01 billion (representing 47% of total revenue), down 44% year-over-year. The figure surpassed the Zacks Consensus Estimate of $965.7 million.

Communication: Market revenues amounted to $240.78 million (11% of revenues), a 45% decrease compared to the same quarter last year. This number is below the Zacks Consensus Estimate of $253.6 million.

Automotive: Market revenues amounted to $658.24 million (30% of revenues), a 10% decrease compared to the same quarter last year. The figure surpassed the Zacks Consensus Estimate of $652.8 million.

Consumer: The market generated revenue of $245.18 million (11% of revenue), a 9% decline compared to the same quarter last year. The figure surpassed the Zacks Consensus Estimate of $232.3 million.

Operational details

Adjusted gross margin decreased 700 basis points (bps) from the year-ago quarter to 66.7%.

Adjusted operating expenses were $597.74 million, down 18.5% from the same quarter last year. Adjusted operating expenses as a percentage of revenue were 27.7%, up 520 basis points year-over-year.

Adjusted operating margin was 39% in the reported quarter, well below the 51.2% recorded in the year-ago quarter.

Balance sheet and cash flow

As of May 4, 2024, cash and cash equivalents were $1.94 billion, compared to $1.3 billion as of February 3, 2024.

Long-term debt was $6.61 billion at the end of the second quarter of fiscal 2024, compared to $5.95 billion at the end of the first quarter of fiscal 2024.

Net cash provided by operating activities was $808 million in the reported quarter, compared to $1.14 billion in the prior fiscal quarter.

ADI generated $620 million of free cash flow in its fiscal second quarter.

In the second fiscal quarter, Analog Devices returned $678 million to its shareholders, of which dividend payments amounted to $456 million and shares repurchased amounted to $222 million.

Conductivity

For the third quarter of fiscal 2024, ADI expects revenue of $2.27 billion (+/- $100 million).

Non-GAAP earnings are expected to be $1.50 (+/- $0.10) per share.

Analog Devices anticipates non-GAAP operating margin of 40% (+/- 100 basis points).

How have estimates changed since then?

Over the last month, investors have seen an upward trend in new estimates.

As a result of these changes, the consensus estimate moved by 11.19%.

VGM results

Currently, Analog Devices has a Weak Growth Score of F, but its Momentum Score is performing slightly better at D. Following the exact same trajectory, the stock is rated D on the Value side, ranking in the low 40% for this investment strategy.

Overall, the company’s overall VGM score is F. If you’re not focused on one strategy, this score should interest you.

Perspectives

Estimates for the stock are trending upwards, and the scale of these revisions looks promising. Notably, Analog Devices carries a Zacks Rank #3 (Hold). We expect a linear rate of return on the stock over the next few months.

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