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Texas Instruments (TXN) Up 1.6% Since Last Earnings Report: Can It Continue?

It has been about a month since the last earnings report for Texas Instruments (TXN). Shares have added about 1.6% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Texas Instruments 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 drivers.

Texas Instruments Beats on Q1 Earnings

Texas Instruments reported first-quarter 2023 earnings of $1.85 per share, beating the Zacks Consensus Estimate by 5.1%. Also, the figure is near the higher end of the management’s guided range of $1.64-$1.90.

However, the bottom line declined 21% year over year and 13.1% from the previous quarter.

TXN reported revenues of $4.38 billion, which surpassed the Zacks Consensus Estimate of $4.36 billion. Further, the figure was within the management’s guided range of $4.17-$4.53 billion.

Top line decreased 11% from the year-ago quarter’s level and 6% sequentially. This was attributed to a weak demand environment. The company witnessed sluggishness in its Analog and Other segments.

On a sequential basis, Texas Instruments suffered from widespread weakness in the personal electronics, communication equipment and enterprise systems markets.

It experienced sequential growth in the automotive end market, which remains a positive.

Also, Embedded Processing segment delivered improved performance on a year-over-year basis, which was another positive.

We note that Texas Instruments’ efficient manufacturing strategies and consistent returns to shareholders are likely to instill investors’ optimism on the stock. Its substantial investments in growth avenues and competitive advantages are other positives.

Segments in Detail

Analog: Revenues of $3.3 billion were generated from the segment (75.1% of total revenues), down 14% from the year-ago quarter’s level.

Embedded Processing: Revenues summed up to $832 million (19% of total revenues), up 6% year over year.

Other: Revenues totaled $258 million (5.9% of total revenues). The figure was down 16% from the prior-year quarter’s level.

Operating Details

Texas Instruments’ gross margin of 65.4% contracted 480 basis points (bps) from the year-ago quarter’s level.

As a percentage of revenues, selling, general and administrative expenses expanded 220 bps year over year to $474 million in the reported quarter.

Research and development expenses of $455 million expanded 250 bps from the year-ago quarter’s level as a percentage of revenues.

The operating margin was 44.2%, which contracted 800 bps from the prior-year quarter’s number.

Balance Sheet & Cash Flow

As of Mar 31, 2023, the cash and short-term investment balance was $9.5 billion compared with $9.1 billion as of Dec 31, 2022.

At the end of the reported quarter, TXN had a long-term debt of $9.6 billion compared with $8.2 billion in the prior quarter.

Current debt was $500 million at the end of first-quarter 2023, which remained flat compared with the previous quarter.

Texas Instruments generated $1.16 billion of cash from operations, down from $2.04 billion in the previous quarter.

Capex was $982 million in the reported quarter. Free cash flow stood at $178 million.

Texas Instruments paid out dividends worth $1.12 billion in the reported quarter. TXN repurchased shares worth $103 million.

Guidance

For second-quarter 2023, Texas Instruments expects revenues between $4.17 billion and $4.53 billion.

Texas Instruments expects earnings within $1.62-$1.88 per share.

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How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended downward during the past month.

VGM Scores

Currently, Texas Instruments has an average Growth Score of C, though it is lagging a bit on the Momentum Score front with a D. Following the exact same course, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Texas Instruments has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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