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Why Is Microchip Tech (MCHP) Up 2.1% Since Last Earnings Report?

A month has gone by since the last earnings report for Microchip Technology (MCHP). Shares have added about 2.1% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Microchip Tech 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 catalysts.

Microchip Q4 Earnings Meet Estimates, Sales Decline Y/Y

Microchip Technology reported fourth-quarter fiscal 2024 non-GAAP earnings of 57 cents per share, which was in line with the Zacks Consensus Estimate but declined 65.2% on a year-over-year basis.

Net sales of $1.33 billion decreased 40.6% year over year and lagged the Zacks Consensus Estimate by 0.09%.

Quarter in Detail

Sales from mixed signal microcontroller, analog and other accounted for 52.5%, 24.8% and 22.7% of net sales, respectively.

Geographically, revenues from the Americas, Europe and Asia contributed 30.7%, 24.2% and 45.1% to net sales, respectively.

Non-GAAP gross margin contracted 800 basis points (bps) on a year-over-year basis to 60.3%.

Non-GAAP research & development expenses, as a percentage of net sales, increased 400 bps year over year to 16.4%. Non-GAAP selling, general & administrative expenses, as a percentage of net sales, jumped 270 bps to 8.9%.

Non-GAAP operating expenses, as a percentage of net sales, increased 670 bps year over year to 22.5%.

Consequently, the non-GAAP operating margin declined to 32.9% compared with 47.6% reported in the year-ago quarter.

Balance Sheet & Cash Flow

As of Mar 31, 2024, cash and short-term investments totaled $319.7 million compared with $281 million as of Dec 31, 2023.

As of Mar 31, 2024, total debt (long-term plus current portion) was $5.99 billion compared with $5.7 billion as of Dec 31.

For the fiscal fourth quarter, cash flow from operating activities was $430 million compared with $853.3 million in the previous quarter.

Free cash flow was $389.9 million compared with $793.8 million in the previous quarter.

Microchip returned roughly $629.9 million to shareholders in the fiscal fourth quarter through dividends of $242.5 million and share repurchases of approximately $387.4 million.

The company announced a quarterly dividend of 45.2 cents per share, up 18% from the year-ago quarter.

Guidance

Microchip expects net sales to be $1.22-$1.26 billion for the first quarter of fiscal 2025.

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Non-GAAP earnings are anticipated between 48 cents per share and 56 cents per share.

Non-GAAP gross margin is anticipated between 59% and 61%.

Non-GAAP operating expenses are projected to be 28.25-28.75%.

Non-GAAP operating margin is anticipated to be 30.25-32.75%.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates.

The consensus estimate has shifted -15.56% due to these changes.

VGM Scores

Currently, Microchip Tech has a poor Growth Score of F, a grade with the same score on the momentum front. Charting a somewhat similar path, 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 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 downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Microchip Tech has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

Performance of an Industry Player

Microchip Tech belongs to the Zacks Semiconductor - Analog and Mixed industry. Another stock from the same industry, Monolithic Power (MPWR), has gained 3.5% over the past month. More than a month has passed since the company reported results for the quarter ended March 2024.

Monolithic reported revenues of $457.89 million in the last reported quarter, representing a year-over-year change of +1.5%. EPS of $2.81 for the same period compares with $3 a year ago.

For the current quarter, Monolithic is expected to post earnings of $2.99 per share, indicating a change of +6% from the year-ago quarter. The Zacks Consensus Estimate has changed +0.7% over the last 30 days.

The overall direction and magnitude of estimate revisions translate into a Zacks Rank #3 (Hold) for Monolithic. Also, the stock has a VGM Score of C.

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