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Linear Technology (LLTC) Beats on Q3 Earnings, Stock Up

Linear Technology Corp. LLTC reported third-quarter fiscal 2016 earnings of 52 cents, which beat the Zacks Consensus Estimate of 50 cents by 4%. Earnings increased 5.7% sequentially mainly backed by higher revenues.

Following the strong fiscal third-quarter earnings, share price rose 1.47% in after-hours trading.

Revenues

Linear reported revenues of $361.1 million, down 2.9% year over year but up 4.0% sequentially. The figures were above the Zacks Consensus Estimate of $359.0 million and on the upper end of the company’s guided range. The sequential increase was attributed to an improvement in sales in the Transportation and Industrial markets. Moreover, the Communications market also performed better than expected.

Margins

Gross margin was 76.2%, up 51 basis points (bps) sequentially and 16 bps year over year.

Operating expenses of $112.7 million decreased 0.5% sequentially but increased 3.1% year over year. As a percentage of sales, research & development and selling, general & administrative expenses increased from the year-ago quarter. As a result, operating margin of 45.0% was up 194 bps sequentially but down 166 bps year over year.

GAAP net income was $128.4 million or 52 cents per share compared with $121.5 million or 50 cents in the previous quarter and $135.2 million or 55 cents a year ago. As there were no one-time items, pro-forma earnings were also 52 cents, down from 55 cents in the prior-year quarter.

Balance Sheet

Linear exited the fiscal third quarter with cash, cash equivalents and marketable securities of approximately $1.36 billion against $1.31 billion in the prior quarter. Account receivables were $152.9 million, up from $145.0 million in the fiscal second quarter.

Linear generated $177.4 million from cash for operations and spent $13.2 million on capital expenditures. The company repurchased shares worth $32.6 million and paid $78.2 million as dividend.

Fourth Quarter Guidance

Linear expects revenues to increase only 2% to 5% sequentially due to weakness in a few markets and a cautious macroeconomic environment. The Zacks Consensus Estimate is pegged at $373.0 million.

Conclusion

Linear Technology reported a strong quarter with revenues and earnings surpassing our expectations. The company’s business is well diversified among core markets, including industrial, automotive and communications infrastructure.

Going forward, the macroeconomic climate looks uncertain. The soft revenue guidance reflects weakness in the company’s end markets and volatility in the semiconductor space. However, the transportation market is expected to do well in the near term.

Nevertheless, Linear has an impressive record of returning cash to shareholders through dividends and share buybacks, which should increase investors’ confidence, in our view.

Linear carries a Zacks Rank #4 (Sell). Some better-ranked stocks in the technology sector are Konami Holdings Corporation KNMCY, NetSol Technologies, Inc. NTWK and Nuance Communications, Inc. NUAN. Each of these stocks sports a Zacks Rank #1 (Strong Buy).

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NUANCE COMM INC (NUAN): Free Stock Analysis Report
 
NETSOL TECH INC (NTWK): Free Stock Analysis Report
 
LINEAR TEC CORP (LLTC): Free Stock Analysis Report
 
KONAMI CORP-ADR (KNMCY): Free Stock Analysis Report
 
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