Teradyne Beats on Q1 Earnings, Revs - Analyst Blog

Teradyne Inc. TER reported first-quarter 2014 earnings of 11 cents per share, beating the Zacks Consensus Estimate of 7 cents. Adjusted earnings per share exclude one-time items but include stock-based compensation expense.

Revenues

Revenues of $321.0 million were up 12.5% sequentially and 14.5% year over year. Revenues exceeded the Zacks Consensus Estimate of $318 million and were at the higher end of management's guided range of $300.0–$330.0 million.

Around 81.6% of revenues in the quarter came from semiconductor testing platforms, 11.8% from system testing and the remaining 6.6% from wireless testing business.

Bookings

Total bookings in the quarter amounted to $450.0 million, of which $366.0 million were in Semiconductor Test, $57.0 million in Wireless Test and $27.0 million in the Systems Test Group.

Total orders improved 55.2% sequentially in the first quarter, with Semiconductor Test orders increasing 62.7% sequentially (the highest in four years); Wireless Test orders increasing 21.3% and Systems Test Group orders growing 50% sequentially.

Margins

Reported gross margin for the quarter was 52.0%, down 400 basis points (bps) sequentially and 270 bps year over year. The sequential decrease was due to unfavorable mix.

Total operating expenses of $163.4 million were up 9.6% from $149.0 million in the year-ago quarter. Engineering and development (E&D) expenses decreased as a percentage of sales, while selling and administrative (S&A) expenses increased slightly. As a result, the reported operating margin was 1.1% versus 1.6% in the year-ago quarter.

The quarter's GAAP net income was $0.9 million or earnings of less than a cent on a per share basis, down from $6.6 million or 3 cents in the comparable quarter last year. Excluding special items but including stock-based compensation expense, non-GAAP net income was $22.4 million or 11 cents per share compared with $18.2 million or 9 cents in the year-ago quarter.

Balance Sheet

The company ended the first quarter with cash and cash equivalents, and marketable securities balance of $694.8 million, down from $928.5 million in the prior quarter. Trade receivables were $215.6 million, up from $157.6 million in the prior quarter.

Cash flow from operations was ($25.8) million versus $43.7 million in the prior quarter. Capex was $31.2 million versus $23.6 million in the prior quarter.

The company will pay its initial quarterly cash dividend of 6 cents per share on Jun 2, 2014, to shareholders of record as of the close of business on May 9.

Guidance

Management provided guidance for the second quarter of 2014. Revenues are expected in the range of $460–$490 million, up 47.9% sequentially at the mid-point. Non-GAAP earnings from continuing operations are expected in the range of 36 to 43 cents a share and GAAP earnings are expected within 29 to 36 cents per share.

Conclusion

Teradyne's first-quarter earnings exceeded the Zacks Consensus Estimate on higher revenues.

The company reported improving orders and provided encouraging second-quarter revenue guidance, indicating increasing demand for Teradyne products in the near future. However, management expects limited visibility in the Wireless Test market in the near term.

Additionally, the announcement of dividend initiation is quite encouraging as it reflects the company's strong cash generation capabilities and its commitment to return value to shareholders.

Currently, Teradyne has a Zacks Rank #2 (Buy). Other stocks that have been performing well and are worth a look include Entergy Corporation ETR, Vertex Pharmaceuticals Incorporated VRTX and Ametek Inc. AME. All these stocks sport a Zacks Rank #1 (Strong Buy).