Analog Devices early Thursday beat analyst estimates for its fiscal second quarter and with its guidance for the current period. ADI stock initially rose on the news but then reversed.
The chipmaker earned an adjusted $1.85 a share on sales of $2.64 billion in the quarter ended May 3. Analysts polled by FactSet had expected earnings of $1.70 a share on sales of $2.51 billion. On a year-over-year basis, Analog Devices earnings surged 32% while sales increased 22%.
With its fiscal Q2 report, Analog Devices returned to growth after seven consecutive quarters of declining sales and earnings. The company is emerging from a cyclical downturn in semiconductor demand in the automotive and industrial sectors.
For its fiscal third quarter, the Wilmington, Mass.-based company predicted adjusted earnings of $1.92 a share on sales of $2.75 billion. That's based on the midpoint of its outlook. Analysts were modeling earnings of $1.80 a share on sales of $2.61 billion in fiscal Q3. In the same quarter last year, the chipmaker earned an adjusted $1.58 a share on sales of $2.31 billion.
"Against a backdrop of global trade volatility, our performance reflects the ongoing cyclical recovery, and the strength and resiliency of our business model," Chief Executive Vincent Roche said in a news release.
ADI's fiscal second-quarter bookings accelerated across all end markets and regions, Chief Financial Officer Richard Puccio said a statement. "The improving demand signals we saw throughout our fiscal Q2, support our outlook for continued growth in Q3, and reinforce our view that we are in a cyclical upturn," he said.
Analog Devices reports sales in four market verticals: industrial, automotive, consumer and communications. The largest is industrial, accounting for 44% of sales in fiscal Q2, followed by automotive, with 32% of sales.
ADI Stock Drops After Report
But Wall Street analysts nitpicked at the company's report.
Automotive chip sales came in stronger than expected, but nearly half of the growth came from tariff-related pull-ins in the U.S. and Europe, Needham analyst Quinn Bolton said in a client note.
Also, the company's operating margin is under pressure near-term due to higher variable compensation and increased salary expenses, Bolton said. He rates Analog Devices stock as hold.
On the stock market today, ADI stock fell 4.6% to close at 211.93. Earlier in the session, it was up as much as 1% to 224.40.
ADI stock has formed a cup base with a buy point of 247.10, according to IBD MarketSurge charts. Analog Devices stock has been working on a handle but it isn't quite finished. Investors could use 228.80 as an early entry, based on IBD analysis.
"While the results and guide were well above expectations, we believe management commentary regarding pull-ins — which is estimated to have driven about 10% upside in Auto in fiscal Q2 — weighed on shares today," Raymond James analyst Melissa Fairbanks said in a client note. "We believe most suppliers likely benefited from some pull-in activity; ADI was simply the first to call out the magnitude."
She rates ADI stock as outperform with a price target of 260.
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