Why Is Semtech (SMTC) Up 11.9% Since Last Earnings Report?
It has been about a month since the last earnings report for Semtech (SMTC). Shares have added about 11.9% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Semtech due for a pullback? 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 important catalysts.
Semtech's Q2 Earnings Beat, Sales Dip Y/Y
Semtech Corporation’s second-quarter fiscal 2025 non-GAAP earnings of 11 cents per share beat the Zacks Consensus Estimate by 10%. The bottom line declined 15.4% year over year.
Net sales of $215.4 million surpassed the Zacks Consensus Estimate of $212.42 million. The figure declined 9.6% year over year.
However, SMTC provided positive guidance for third-quarter fiscal 2025. At the mid-point, it now expects growth in net sales, gross, operating and adjusted EBITDA margins. This calls for earnings growth in the current quarter.
SMTC’s Q2 Top-Line Details
Broad-based weakness in the industrial end-market led to a top-line decline on a year-over-year basis. Softness in the IoT Systems and Connectivity segment was a headwind.
The growing momentum across the infrastructure and high-end consumer end markets benefited the company. Strength in Signal Integrity and Analog Mixed Signal & Wireless segments was a positive.
SMTC’s Revenues by End Market
Sales from the infrastructure market were $52.9 million (25% of net sales), exhibiting year-over-year growth of 25%. This was driven by solid demand for Semtech’s FiberEdge TIAs, laser drivers and Tri-Edge 50G PAM4 products that led to strong growth in hyperscale data center sales in the reported quarter.
Sales from the industrial market were $125.3 million (58% of net sales), down 23% from the prior-year period’s tally.
Sales from the high-end consumer market were $37.1 million (17% of net sales), increasing 9% year over year. Strong market demand, along with solid momentum in consumer circuit protection and smart sensing products, drove top-line growth.
SMTC’s Revenues by Product Lines
Signal Integrity (28% of net sales) sales were $59.4 million in the reported quarter, up 28.9% year over year.
Analog Mixed Signal & Wireless (37% of net sales) sales were $79.3 million, up 13.3% from the prior-year quarter’s figures.
IoT System and Connectivity (35% of net sales) sales were $76.6 million, down 37.4% on a year-over-year basis.
SMTC’s Operating Details
The non-GAAP gross margin of 50.4% expanded 80 basis points (bps) from the year-ago quarter’s tally.
Adjusted selling, general and administrative expenses for the fiscal second quarter declined 3.5% to $41.3 million from the prior-year quarter’s levels.
Adjusted product development and engineering expenses fell 14.7% from the year-ago quarter’s figure to $36.6 million.
The non-GAAP operating margin of 14.2% expanded 60 bps from the prior-year quarter’s tally.
Semtech’s Balance Sheet & Cash Flow
As of Jul. 28, 2024, cash and cash equivalents were $115.9 million, down from $128.6 million as of Apr. 28, 2024.
Account receivables for second-quarter fiscal 2025 were $152.9 million, down from $153.9 million in first-quarter fiscal 2025.
The long-term debt was $1.19 billion compared with $1.37 billion in the previous quarter.
In the reported quarter, the company used $4.99 million of cash in operations compared with $89,000 of cash used in operations in the previous fiscal quarter. The free cash flow in the fiscal second quarter was an outflow of $8.41 million.
SMTC Offers Positive Q3 Guidance
For third-quarter fiscal 2025, management expects net sales of $233 million (+/- $5 million).
The non-GAAP gross margin is expected to be 52% (+/- 50 bps). The non-GAAP operating margin is anticipated to be 17.2% (+/- 80 bps).
The non-GAAP-based earnings per share is expected to be 23 cents (+/- 3 cents).
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates.
The consensus estimate has shifted 13.79% due to these changes.
VGM Scores
At this time, Semtech has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with an F. Following the exact same course, the stock was allocated a grade of F on the value side, putting it in the fifth quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Semtech has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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Semtech Corporation (SMTC) : Free Stock Analysis Report