Cirrus Logic is cruising higher following stronger-than-expected MarQ results (CRUS)
Cirrus Logic (CRUS +10%) is cruising higher following its Q4 (Mar) results last night. CRUS reported a huge EPS beat. Analysts had been expecting a large yr/yr revenue decline, but revenue was basically flat, at -0.3% yr/yr to $371.8 mln due to stronger than anticipated demand for smartphone products. Also, the mid-point of its Q1 (Jun) revenue guidance was much better than expected.
- CRUS's largest customer by far is Apple (AAPL), which represented 83% of FY23 sales, so there is a high correlation between the two companies. CRUS primarily focuses on chips (ICs, codecs, ADCs) for audio and voice signal processing applications. However, CRUS has also been branching into the mixed-signal category with power being its largest growth opportunity. Notably, CRUS is expanding into the wired and wireless fast-charging space from its recent Lion Semiconductor acquisition.
- Earlier this week, Apple reported that MarQ iPhone revenue fell 10.5% yr/yr to $45.96 bln. Keep in mind that last year's MarQ benefitted from Apple's ability to replenish iPhone channel inventory and fulfill significant pent-up demand from DecQ COVID-related supply disruptions on the iPhone 14 Pro. However, with Apple such a major customer for CRUS, we were a little nervous going into this report.
- CRUS noted that shipments remained robust throughout MarQ. Revenue was down 40% sequentially, due primarily to a reduction in smartphone volumes, but that followed a stronger than seasonal DecQ. Margins were another bright spot as non-GAAP gross margin was 51.9%, above the high end of guidance due mostly to supply chain efficiencies and lower freight expense. JunQ guidance is 49-51%.
- The company says it continues to make progress on its three growth strategies: maintain leadership in its core flagship smartphone audio business; expand into areas of high-performance mixed-signal functionality in smartphones; and leverage its audio and high-performance mixed-signal capabilities to penetrate new markets.
- In FY24, on its first goal, CRUS delivered a boosted amplifier and a smart codec. Both products are expected to launch in devices this fall. Beyond audio, CRUS also made significant investments in certain HPMS areas (camera controllers) where its mixed signal design and signal processing expertise can enhance its customers' products.
Overall, this was an impressive way to wrap up FY24 for Cirrus Logic and provides good momentum heading into FY25. We were expecting a pretty quiet quarter, but smartphone demand was stronger than expected. This strong report and guidance has pushed the stock back above $100 for the first time since April 2023.
Arista Networks gaps higher on raised FY24 sales guidance following broad-based demand in Q1 (ANET)
Arista Networks (ANET +7%) was dialed in during Q1, surpassing earnings and revenue estimates with ease, supported by broad-based growth in cloud, AI, and enterprise. The cloud networking firm, competing against several prominent tech firms, including Cisco (CSCO), Dell (DELL), and Hewlett Packard Enterprise (HPE), also projected relatively uplifting Q2 revenue guidance, with the midpoint exceeding analyst forecasts. Additionally, ANET authorized a new $1.2 bln share buyback program, representing slightly over 1% of its market cap.
Perhaps having the most positive influence on today's price action was ANET raising its FY24 sales growth outlook by 2 pts to +12-14%. It is important to note that ANET seldom increases its full-year guidance this early into the fiscal year. As such, its increased forecast signals confidence, albeit with a hint of caution given the fluid demand backdrop, in current tailwinds persisting throughout the remainder of FY24.
- AI is becoming ANET's most powerful tailwind. CEO Jayshree Ullal touched on the critical components of how AI has been and will continue to lift the company's financial performance, noting that AI requires building the proper networking to ensure the technology encounters limited slowdown. Jayshree Ullal continued, stating that the industry is at an inflection point surrounding AI networking, which he anticipates will continue throughout the next decade, helping increase the company's confidence in achieving its AI revenue target of $750 mln in 2025.
- While merely in the early stages of growth, AI was a component of ANET's uplifting Q1 results, delivering adjusted EPS of $1.99, a 39% jump yr/yr, on top-line growth of 16% to $1.57 bln, exceeding the company's $1.52-1.56 bln guidance. Management is observing strong revenue growth in the U.S., particularly among Cloud Titan (companies with the potential to attain over 1 mln installed compute services) and Enterprise customers.
- It is worth mentioning that nearly half of ANET's revenue stems from Microsoft (MSFT) and Meta Platforms (META), comprising 39% of its FY23 revenue collectively. These two organizations are investing heavily in AI infrastructure, with META announcing a $4.0 bln hike to its FY24 CapEx guidance last month.
- Looking ahead, ANET's more bullish FY24 revenue outlook starts with an upbeat Q2, projecting $1.62-1.65 bln. The company commented that the activity in Q1 alone was well beyond what it initially anticipated. However, Jayshree Ullall followed this up by noting that he is cautiously confident, reflecting a lingering concern over a volatile economy, one that recently hurt ANET's quarterly numbers throughout 2022.
For a company that commands a solid track record surrounding earnings reports, ANET typically needs to go a step beyond delivering just in-line results. It did just that in Q1, supporting its shares' recent upward momentum. The stock is filling the gap from early April, which kicked off a quick pullback erasing 2024 gains. With organizations continuing to pour capital into bolstering their AI infrastructure, ANET remains well-positioned for continued upside.
Kenvue delivers some pain relief to investors with EPS beat and cost-cutting initiative (KVUE)
Just over one year ago, Johnson & Johnson (JNJ) spun off its consumer health business in an IPO, which is now known as Kenvue (KVUE), and it's been a rough ride for both stocks since then. Today, however, KVUE shareholders are enjoying a nice rally after the company beat Q1 EPS expectations, reaffirmed its FY24 guidance, and announced a reduction of its workforce of approximately 4%. The job cuts are expected to result in annualized pre-tax gross savings of about $350 mln, most of which will be realized in FY26, enabling KVUE to reinvest the savings into its fifteen priority brands.
- Those fifteen priority brands are mainly concentrated in KVUE's Self-Care segment, account for roughly two-thirds of the company's growth, and include names like Tylenol, Benadryl, Motrin, and Zyrtec. In Q1, the Self Care segment generated net sales of $1.70 bln, up 3.5% yr/yr, entirely driven by favorable price/mix as volume decreased by 1.4%. In fact, volumes were down in each of KVUE's three segments (Self Care, Skin Health & Beauty, Essential Health), decreasing by 3.1% on a consolidated basis.
- Approximately two points of that volume decrease was related to retailer inventory buildups in the year-ago period and the effects of associated inventory drawdowns in this quarter. Unfortunately, the company expects these inventory reduction efforts to continue through 2Q24.
- The good news, though, is that supply chain improvements, some easing of cost inflation, and pricing are enabling KVUE to mitigate the negative effect of the volume contraction. These factors drove adjusted gross profit margin higher by 290 bps yr/yr to 60.2%.
- We also believe that investors were relieved to see KVUE reaffirm its FY24 EPS guidance of $1.10-$1.20, revenue guidance of $15.59-$15.90, and organic growth forecast of 2-4%. These guidance ranges were below analysts' expectations last quarter, so it would have been especially discouraging if KVUE had cut its guidance this time around.
By no means did KVUE knock it out of the park with its Q1 results and outlook, and the volume declines across each of its segments leaves much to be desired. Expectations remained muted to say the least, though, with shares down by 25% versus its IPO opening price, setting the stage for a rebound on a better-than-feared performance. KVUE delivered just that, while tacking on a cost-savings initiative, providing the stock with a much-needed boost. |
