Texas Instruments (TXN) Benefits From Robust Growth In The Automotive And Industrial Markets In Q2
2:52 pm Wednesday, July 27th, 2022
With business accelerating toward the back half of the quarter, as COVID restrictions in China began to ease, Texas Instruments (TXN) was able to post sizeable earnings upside on strong revenue growth in Q2. As evidenced by upbeat results from titans in their respective industries, such as Taiwan Semi (TSM) and General Electric (GE), the automotive and industrial markets experienced robust demand, helping lift TXN’s Q2 numbers.
Drilling deeper, TXN’s 13.8% revenue growth yr/yr to $5.21 bln, which easily surpassed estimates, was fueled by over 20% growth in automotive and high single-digit growth in industrial. The solid top-line growth helped drive a 23% jump in adjusted EPS yr/yr to $2.45.
Gross margins were another positive standout, expanding 240 bps yr/yr to 70%, reaching TXN’s long-term target of 70-75%.
TXN is also adding additional capacity to keep its customers’ inventories stable, with its two factories, RFAB2 and LFAB, coming online within the next three years.
This does lead to a concern about adding too much capacity if economic conditions sour. However, TXN is comfortable increasing inventory, stating that its supply goes to support products that not only sell to a vast set of customers but also have very long useful lives.
TXN’s Q3 guidance was decent, guiding adjusted earnings and revs in-line with consensus. The company expects earnings of $2.23-2.51 and revs of $4.9-5.3 bln.
TXN does not typically provide additional color on its quarterly outlook unless there are specific outliers. Therefore, the company’s mentioning of continual weakness in the personal electronics market is noteworthy and affirms what we heard from its peers in previous months.
Overall, TXN’s Q2 results were sound, helping to keep its shares’ past momentum alive today. Since setting YTD lows on July 1, the stock has gained nearly 13%. With industrial and automotive markets exhibiting strength, TXN is poised to continue its run, especially as factory automation and vehicle electrification continue to gain steam. Finally, TXN’s solid Q2 numbers are a good sign for peer Analog Devices (ADI) when it reports Q3 (Jul) earnings on August 17.
