Why Broadcom Earnings Aren’t Enough

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When Broadcom Ltd. (NASDAQ: AVGO) reported its most recent quarterly results after the markets closed on Thursday, the company said that it had $5.12 in earnings per share (EPS) on $5.33 billion in revenue. That compared with consensus estimates of $5.04 in EPS and revenue of $5.32 billion. In the same period of last year, the fabless semiconductor maker said it had EPS of $3.63 and $4.15 billion in revenue.

During the first quarter, Broadcom generated $1.685 billion in cash from operations and received $782 million from the sale of businesses and $237 million from the sale of real property. At the same time, the company spent $5.642 billion on acquisitions of businesses, including payment of assumed debt, $244 million on the purchase of investments and $220 million on capital expenditures.

The board of directors has approved a quarterly, interim cash dividend of $1.75 per ordinary share. A corresponding distribution will also be paid by the partnership, of which the company is the general partner, to holders of LP units, in the amount of $1.75 per LP unit. The dividend and the distribution are both payable on March 29, to shareholders or unitholders of record at the close of business on March 22.

In terms of the outlook for the fiscal second quarter, the company expects to see net revenues in the range of $4.925 billion to $5.075 million with a gross margin of 65% to 67%. The consensus estimates call for $4.64 in EPS on $5.01 billion in revenue.

On the books, Broadcom’s cash and cash equivalents at the end of the first fiscal quarter was $7.076 million, compared to $11.204 million at the end of the prior quarter.

Hock Tan, president and CEO of Broadcom, said:

We had a very good start to our fiscal year 2018 delivering first quarter revenue and earnings towards the upper end of guidance. In the second quarter, we expect to sustain topline momentum with strong data center demand for our networking and enterprise storage products, and a seasonal recovery in broadband access, to offset a sharp seasonal decline in wireless. Importantly, we expect gross margin to expand and drive free cash flow above our long term target of 40 percent of revenue.

Shares of Broadcom closed Thursday at $267.76, with a consensus analyst price target of $321.70 and a 52-week trading range of $208.44 to $285.68. Following the announcement, the stock was down over 1% at $264.01 in early trading indications Friday.

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