Broadcom Continues the Trend of Beating Earnings Estimates



Broadcom beats expectations

Broadcom’s (AVGO) earnings topped Wall Street’s expectations in the first quarter of fiscal 2019, the results for which it reported on March 14. Broadcom has beaten analysts’ earnings estimates for the last five straight quarters.

In the first quarter, Broadcom’s EPS of $5.55 topped estimates by 6.1%. Its EPS not only beat estimates but were also 8.4% higher than its earnings from the same quarter a year earlier. However, its EPS were 5.1% lower than the previous quarter’s EPS.

Article continues below advertisement

Earnings drivers

Top line growth driven by the Semiconductor Solutions and Infrastructure Software segments, strength in other semiconductor markets, strong margins, and its acquisition of CA Technologies helped the company achieve improved earnings in the quarter. Its repurchasing of shares also drove its earnings growth in the quarter. Broadcom initiated a $12 billion share buyback plan in April to compensate shareholders for its failed Qualcomm (QCOM) merger.

The company’s adjusted gross margin was 71.4% in the first quarter, which expanded 300 basis points from 68.4% in the previous quarter and 660 basis points from 64.8% in the same quarter last year.

Its adjusted operating margin also expanded from both the previous quarter and the previous year’s quarter, even though its operating expenses surged 57% YoY in the first quarter of fiscal 2019. In the first quarter, its operating margin was 52.7%, an expansion of 20 basis points from the previous quarter and 450 basis points from the previous year’s quarter. Higher top line growth and a higher gross margin led to a higher operating margin in the quarter.

However, the weakness in demand for chips due to a cut in production of Apple’s iPhones is expected to hurt Broadcom, which supplies chips to smartphone makers such as Apple and Samsung (SSNLF). The softness in Apple’s iPhone production might also hurt chip makers Micron (MU) and Western Digital (WDC), which have exposure to Apple’s iPhone business.


More From Market Realist