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Why Is Texas Instruments (TXN) Up 15.9% Since Last Earnings Report?

A month has gone by since the last earnings report for Texas Instruments (TXN). Shares have added about 15.9% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is 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 its most recent earnings report in order to get a better handle on the important catalysts.

Texas Instruments Q1 Earnings Beat, Revenues Down Y/Y

Texas Instruments reported first-quarter 2024 earnings of $1.20 per share, surpassing the Zacks Consensus Estimate by 13.2%. The figure exceeded the guided range of 96 cents-$1.16 per share.

However, the figure declined 35% year over year and 19.5% sequentially.

TXN reported revenues of $3.66 billion, which beat the Zacks Consensus Estimate of $3.61 billion. The figure came within management’s guidance of $3.45-$3.75 billion.

Revenues decreased 16% from the year-ago quarter’s level and 10.2% sequentially.

The year-over-year decline was attributed to weakness across various end markets. The company witnessed sluggishness in its Analog, Embedded Processing and Other segments.

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

A sequential decline by mid-single digits in the automotive market was a major concern.

A sequential upper-single-digit decline in the industrial market was another headwind.

TXN’s investments in growth avenues and competitive advantages, including manufacturing, technology, product portfolio expansion and consistent returns to shareholders, are likely to instill investors’ optimism in the stock in the days ahead.

Segments in Detail

Analog: Revenues of $2.84 billion were generated from the segment (77.5% of total revenues), down 14% from the year-ago quarter’s level. The figure came above the Zacks Consensus Estimate of $2.69 billion.

Embedded Processing: Revenues amounted to $652 million (17.8% of total revenues), down 22% year over year. The figure lagged the Zacks Consensus Estimate of $715.28 million.

Other: Revenues totaled $173 million (4.7% of total revenues). The figure was down 33% from the prior-year quarter’s level and missed the consensus mark of $197.13 million.

Operating Details

Texas Instruments’ gross margin of 57% contracted 820 basis points (bps) from the year-ago quarter’s level.

As a percentage of revenues, selling, general and administrative expenses expanded 160 bps year over year to $455 million in the reported quarter.

Research and development expenses of $478 million expanded by 270 bps from the year-ago quarter’s level as a percentage of revenues.

The operating margin was 35.1%, which contracted 910 bps from the prior-year quarter’s number.

Balance Sheet & Cash Flow

As of Mar 31, 2024, the cash and short-term investment balance was $10.4 billion compared with $8.58 billion as of Dec 31, 2023.

At the end of the reported quarter, TXN had a long-term debt of $12.840 billion compared with $10.624 billion in the prior quarter.

The current debt was $1.35 billion, up from $599 million at the end of the fourth quarter of 2023.

Texas Instruments generated $1.02 billion of cash from operations, down from $1.92 billion in the previous quarter.

Capex was $1.25 billion in the reported quarter, and the company reported a free cash outflow of $231 million.

Texas Instruments paid out dividends worth $1.18 billion in the reported quarter. It repurchased shares worth 3 million.

Guidance

For second-quarter 2024, TXN expects revenues between $3.65 billion and $3.95 billion.

The company expects earnings within $1.05-$1.25 per share.

The company expects the effective tax rate to be approximately 13%

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How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended upward during the past month.

VGM Scores

At this time, Texas Instruments has a subpar Growth Score of D, however its Momentum Score is doing a bit better with a C. However, the stock was allocated a grade of F on the value side, putting it in the bottom 20% 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 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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