Teradyne Inc. (TER) reported fourth quarter earnings that beat the Zacks Consensus estimate by 5 cents. The company has a history of positive surprises, and the net negative surprise of 2.12% in the four preceding quarters is skewed by the Dec 2008 quarter, when it was severely hit by the recession. Moreover, estimates are on an uptrend, indicating a progressively improving performance over the past few quarters. The Zacks Consensus estimate for the Dec quarter was 15 cents, representing an upside potential of 13.33%. However, results were significantly better that expected.
Revenue
Revenue of $267.1 million was up 1.9% sequentially and 37.1% year over year. Revenue was within the guided range of $255-270 million and more or less in line with consensus expectations. This was the third straight quarter of sequential increase in revenue. The year-over-year increase followed three quarters of double-digit decline. Around 74% of revenue in the last quarter came from semiconductor testing platforms, while the balance came from system testing. The strength in the semiconductor market (up 14.5% sequentially) was likely driven by the broad-based recovery across most end-markets, as well as stronger pricing. System testing declined 22.5% last quarter coming off a very strong Sep quarter, when revenue was up 32.8%.
Orders
Orders continued to grow, albeit at a slower pace than in the Sep 2009 quarter, most likely due to seasonality. Orders were up 5.1% sequentially and 78.7% over the Dec quarter of 2008. This was the second straight quarter of double-digit year-over-year increase in orders. The strength compared to the year-ago period was due to a respite from recessionary pressures.
Margins
The pro forma gross margin was 49.7%, up 440 basis points (bps) sequentially and 761 bps year over year. However, the operating margin of 15.1% was up 206 bps sequentially. This was largely attributable to $92.4 million of operating expenses that were up 9.3% sequentially on a revenue increase of just 1.9%.
Net Income
The pro forma net income was $35.6 million, or 13.3% net income margin compared to $33.9 million, or 12.9% net income margin in the Sep 2009 quarter and a net loss of $28.2 million, or 14.5% net loss margin in the Dec quarter of 2008. Our pro forma estimate excludes inventory charges, restructuring charges, amortization of intangibles and other charges in the last quarter.
Including these special items, the GAAP net income was $16.9 million, or $0.09 per share compared to income of $6.7 million, or $0.04 per share in the previous quarter and a loss of $385.0 million, or $2.28 per share in the year-ago quarter. The GAAP profit in the year-ago quarter was impacted by $329.7 million ($1.95 a share) in goodwill impairment charges. The GAAP EPS of $0.09 was at the high-end of management’s guided range of $0.04-$0.09.
Balance Sheet
The company has a fairly strong balance sheet, with cash and short term investments of $463.7 million, which increased by $51.2 million in the last quarter. The net cash balance was $322.6 million ($1.85 a share).
Inventories at quarter-end were down 18.9% sequentially, with inventory turns at 5.9X. This was a slight improvement over inventory turns of 5.1X at the beginning of the quarter. DSOs were around 43 days, down from around 49 days, reflecting better collections in the last quarter.
Guidance
Management provided revenue and EPS guidance for the first quarter of fiscal 2010. Accordingly, revenue is expected to come in at around $290-$310 million (up 8.6% to 16.1% sequentially). The company expects non-GAAP EPS of $0.22-$0.26 and GAAP EPS of $0.14-$0.19. The Zacks Consensus Estimate is currently $0.13, just short of the low-end of the guided range.
Read the full analyst report on “TER”
Zacks Investment Research
