Texas Instruments' Latest Results Indicate More Upside

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Oct 28, 2014

Texas Instruments (TXN, Financial) recently announced third-quarter 2014 revenue of $3.50 billion, an increase of 8 percent over the same period last year and beating the analyst’s estimate of $3.46 billion, according to Zacks. The company estimates fourth-quarter revenue to be in $3.13 billion to $3.39 billion range and in line with analyst’s expectation of $3.24 billion, according to Thomson Reuters.

Earnings analysis

Texas Instruments reported 31 percent increase in third-quarter 2014 net income to $826 million or 76 cents per share and beating the analyst’s estimate of 71 cents per share, according to Zacks. The chipmaker forecasts its fourth-quarter earnings per share to be in 64 cents to 74 cents range.

Outlook

The excellent quarterly results demonstrate Texas Instruments' enhanced product portfolio and improved efficiencies of its manufacturing plan including its expanding 300 millimeter output and buying assets beyond demand even at higher prices.

In the last 12 months, Texas Instruments has returned $4.2 billion of cash to investors using paid dividends and stock repurchases.

Texas Instruments has structurally changed its way to manage inventory in the distribution channel through its consignment program.

This consignment program reduces the change in demand as a result of the channel inventory, distribution inventory and provides it with higher flexibility to serve the customers.

In addition to economically expanding capacity beyond demand, Texas Instruments is determined on providing superior customer service. The chipmaker is able to continuously control and keep its lead times within the limit and regularly deliver on time through continued inventory and capacity management.

Texas Instruments is strongly focused on its belief that solid growth of cash flow mainly the growth of free cash is crucial in maximizing long-term shareholder value through productive reinvestment into the business or returning healthy capital to shareholders.

During the third quarter, Texas Instruments repurchased $670 million of its stock, making the entire return worth $989 million and rewarded $319 million of dividends as well. Further, the chipmaker intends to return all of its free cash flow coupled with any proceeds received through the execution of equity compensation and by eliminating the entire debt retirement.

Entire cash returned in the last 12 months amounts to $4.16 billion, an increase of 9% over last year. During the quarter, Texas Instruments declared a 13% dividend increase in its quarterly cash dividend to $0.34 from $0.30 per share or $1.36 annually. This highlights the company’s 11th successive year of dividend expansion and its 52nd year of nonstop dividend payments.

Tax and cash management practices of the company are in line with its commitment to return solid cash to its shareholders. The chipmaker concluded the third quarter with short-term investments increased from $2.80 billion starting the quarter and $3.19 billion of cash.

The orders for Texas Instruments during the quarter were $3.34 billion, an increase of 6% from last year and its book-to-bill ratio was recorded at 0.95.

Texas Instruments generated $1.4 billion of cash flow from operations and believes that growth of free cash flow is the key for maximizing investor returns in the long run.

Executing successfully towards the goal of maximizing shareholder value, the chip maker generated nearly $3.5 billion of free cash flow for the past 12 months, or approximately 27% of revenue in line with its goal of achieving 20% to 30% of revenue, illustrating a 300-basis point growth from last year.

The growth for Texas Instruments during the third quarter was primarily driven by significant demand for chips employed in automotive, communications equipment and industrial markets.

Texas Instruments has shifted from mobile-chip business owing to extreme competition from other smartphone manufacturers like Qualcomm. Inc. toward the market for embedded processors. The embedded processors are generally used in industrial equipment and cars along with analog chips.

Conclusion

Thus, Texas Instruments has solid long-term growth prospects as indicated by an expected earnings growth rate of 10%, comparable to the industry’s average of 19.75% and expect promising returns in the long run.