How NXP Semiconductors NV Beat Its Own Second-Quarter Estimates

By Markets Fool.com

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Dutch/Texan chipmaker NXP Semiconductors (NASDAQ: NXPI) reported second-quarter results late Wednesday evening. Let's have a look at the report.

NXP Semiconductors Q2 results: The raw numbers

Metric

Q2 2016 Actuals

Q2 2015 Actuals

Growth (YOY)

Revenue

$2.37 billion

$1.51 billion

57%

Net income

($13 million)

$300 million

--

GAAP EPS (diluted)

($0.04)

$1.23

--

Non-GAAP EPS (diluted)

$1.39

$1.44

(3.5%)

YOY = year over year. Data source: NXP.

What happened with NXP this quarter?

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NXP exceeded the midpoints of its own guidance ranges on both the top and bottom lines.

  • Guidance had called for adjusted earnings of roughly $1.35 per share on sales of $2.3 billion. Sales picked up some steam during the quarter, led by the automotive segment. Thanks to tight cost controls, the additional revenue dropped all the way down to the bottom line, mostly intact.
  • It's not all wine and roses, as NXP is battling a generally soft market for semiconductor sales. On a comparable basis, the second quarter's sales were 8% lower than the combined revenues of NXP and Freescale in the year-ago period, before their merger was enacted. This comparison also accounts for divested business units, making it a pretty clear apples-to-apples matchup.
  • Adjusted gross margins landed at an even 50%, consistent with the first quarter and up from 48.7% in the second quarter of 2015.

As usual, NXP provided a fine-grained look at the quarter ahead.

  • In the third quarter, NXP expects to see sales of approximately $2.42 billion. Adjusted gross margins should stop near 50.2%, leading to $680 million in non-GAAP operating income. Adjustments consist of mostly merger-related goodwill balance changes and other restructuring costs.
  • At the midpoint of all third-quarter guidance ranges, the adjusted earnings target works out to approximately $1.69 per share.
  • The revenue target sits just below Wall Street's current estimates, but that might be forgiven since NXP's earnings projection exceeds the current analyst consensus.

What management had to say

CEO Richard Clemmer called the second quarter a "solid" effort, thanks to a modest revenue surprise and disciplined cost controls. Industrywide headwinds seem to be subsiding, but not quickly.

"We believe we have begun to see incremental positive trends in a number of our businesses, with comparable sequential revenue up approximately 6 percent into the second quarter," Clemmer said. "While we anticipate many of the headwinds experienced in the second half of 2015 should begin to generally subside in the coming quarters, the overall demand environment currently continues to be subdued."

Looking ahead

NXP bet the farm on the Freescale merger, and is under tremendous pressure to make the most of it. So far, so good -- the merger process has not produced any sudden revenue sputters or margin slides.

The pressure will hold steady until NXP closes the sale of its standard products division to a Chinese consortium, which should happen in early 2017. That transaction will cement NXP's operating structure while paying down some $2.3 billion of merger-related debt.

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Anders Bylund has no position in any stocks mentioned. The Motley Fool owns shares of and recommends NXP Semiconductors. Try any of our Foolish newsletter services free for 30 days.

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