01—Abstract
Summary
Summary of the 8-K filed July 23, 2024. Cited figures are marked; the original filing is the authoritative source.
Texas Instruments reported second-quarter 2024 revenue of $3.82 billiona, down 16% year over year but up 4% sequentially, with net income of $1.13 billion and diluted EPS of $1.22 (down 35% from $1.87).
Operating profit fell 37% to $1.25 billionb. Management said industrial and automotive revenue continued to decline sequentially, while all other end markets grew. Segment results show Analog revenue down 11% and Embedded Processing down 31%.
EPS included a 5-cent benefit from items not in the original guidance. The cash generation picture is weaker. Trailing-twelve-month cash flow from operations fell 12% to $6.45 billionc, while capital expenditures rose 18% to $4.96 billion as TI builds out its 300mm manufacturing capacity.
Free cash flow dropped 53% to $1.49 billiond, and free cash flow margin fell to 9.3% of revenue from 16.9%. The trailing-twelve-month figures include a $312 million cash benefit from the U.S. CHIPS and Science Act investment tax credit. Cash returned to shareholders over the trailing twelve months was $4.86 billion, down 25%, with dividends of $4.68 billion and only $185 million in buybacks.
For the third quarter, TI guided to revenue of $3.94 billion to $4.26 billion and EPS of $1.24 to $1.48, and continues to expect an effective tax rate of about 13%. Investors will be weighing whether the recovery in non-industrial and non-automotive demand can offset the continued softness in those markets, and whether the heavy capital spending cycle will eventually translate into higher free cash flow. Long-term debt rose to $12.84 billion from $10.92 billion a year earlier, adding to the importance of the cash conversion outlook.
02—Key points
Key Highlights
- Q2 2024 revenue of $3.82B, down 16% YoY and up 4% QoQ; net income of $1.13B (down 35%) and diluted EPS of $1.22 (down from $1.87).
- Operating profit fell 37% to $1.25B, with gross margin compressing as gross profit dropped to $2.21B from $2.91B.
- Segment weakness: Embedded Processing revenue fell 31% and its operating profit fell 75% to $80M; Analog revenue fell 11%.
- Trailing-twelve-month free cash flow fell 53% to $1.49B (9.3% of revenue vs. 16.9%) as capex rose 18% to $4.96B.
- Shareholder returns totaled $4.86B over the trailing twelve months, down 25%, with buybacks down 91% to $185M while dividends rose 6% to $4.68B.
- Q3 2024 guidance: revenue of $3.94B to $4.26B and EPS of $1.24 to $1.48, with an effective tax rate of about 13%.
- Total debt increased to roughly $13.9B from $11.2B a year earlier, with the current portion of long-term debt at $1.05B.
03—Questions
Frequently Asked Questions
Why did TI's free cash flow decline so sharply?
Free cash flow is cash flow from operations minus capital expenditures. Trailing-twelve-month operating cash flow fell 12% to $6.45B, while capex rose 18% to $4.96B as TI invested in 300mm wafer capacity. Free cash flow therefore dropped 53% to $1.49B. The $312M CHIPS Act investment tax credit contributed to the operating cash flow figure, so underlying cash generation was somewhat weaker than reported.
Are TI's revenue declines concentrated in any particular markets?
Yes. Management said industrial and automotive revenue continued to decline sequentially, while other end markets grew. Embedded Processing, which is more exposed to these markets, saw revenue fall 31% year over year, and its operating profit fell 75%. Analog revenue declined 11%.
Is TI still returning cash to shareholders at the same pace?
Dividends continue to rise, up 6% over the trailing twelve months to $4.68B, and the quarterly dividend per share was raised to $1.30 from $1.24. However, total cash returned fell 25% to $4.86B because stock repurchases dropped 91% to $185M. Buybacks have slowed considerably as capex and debt levels have increased.
What does TI's outlook imply for the second half of 2024?
The third-quarter revenue guidance of $3.94B to $4.26B implies sequential growth from Q2's $3.82B, and EPS of $1.24 to $1.48 is above Q2's $1.22. The company expects an effective tax rate of about 13%. The forward-looking statements caution that industrial and automotive demand, customer inventory adjustments, and competitive pricing could cause actual results to differ.
How has TI's balance sheet changed?
Long-term debt rose to $12.84B from $10.92B a year earlier, and the current portion increased to $1.05B from $0.30B. Cash and short-term investments totaled $9.69B, down from $9.55B a year ago, though this figure is up slightly. Property, plant and equipment grew to $11.17B from $8.53B, reflecting the ongoing capacity expansion. Total stockholders' equity increased to $17.21B.
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