How Good Was Texas Instruments' Second Quarter, Really?

Texas Instruments Inc. (NASDAQ: TXN) reported second-quarter 2020 results after markets closed Tuesday. The semiconductor maker reported diluted earnings per share (EPS) of $1.48 on revenues of $3.24 billion. In the same period last year, the company reported EPS of $1.36 on revenues of $3.67 billion. The consensus estimates called for EPS of $0.87 on revenues of $2.94 billion.

The 12% decline in year-over-year revenue was attributed to weak demand in the automotive market. Sales dropped in both the analog and embedded processing divisions of the company with analog chip sales down 4% and embedded processor sales down 31%, again related to the weak automotive market.

TI noted that quarterly EPS included a $0.33 benefit “for items that were not in the company’s original guidance.” No other explanation was offered.

In any event, backing out the benefit still results in EPS of $1.25, more than a third higher than the consensus estimate.

Gross profit fell 11.8% from $2.36 billion to $2.08 billion year over year and operating profit was down 18.4% to $1.23 billion. Operating profit declined in both of TI’s segments “due to lower revenue and associated gross profit.”

For the third quarter, the company guided EPS in a range of $1.14 to $1.34 and revenue in a range of $3.26 to $3.54 billion. Analysts have forecast revenues of $3.09 billion and EPS of $0.99. For the full year, analysts are looking for EPS of $4.11 and sales of $12.5 billion.

Cash flow from operations for the quarter totaled $1.72 billion, about 4% below the total for the prior year’s third quarter. Free cash flow for the trailing twelve months totaled $5.7 billion.

Rich Templeton, TI’s chairman, president, and CEO, noted that the company has returned $6.7 billion to shareholders over the past 12 months through buybacks and dividends. Dividend payments represented 56% of the company’s free cash flow.

The shutdown of auto manufacturing due to the COVID-19 pandemic took a toll on TI’s second quarter, costing the company nearly a third of its embedded processor revenue and 53% of the segment’s operating profit. The decline in the analog segment’s revenue (down 4%) and operating profit (down 5%).

Analysts’ expectations were low and the company cleared that very low bar. Is the guidance counting on more help from the auto industry or will TI be able to turn around the decline in its analog business?

Shares traded up about 2.4% at $138.71 in the after-hours session Tuesday. The stock’s 52-week range is $93.09 to $137.65 and the high was posted earlier in the day. Shares are trading about 12% above their consensus price target of $124.19.