IB Net Payout Yields Model

Texas Instruments Ups Q3 Guidance

Texas Instruments (TXN) ups the midpoint of guidance for Q3 to .69 from .64 but the stock sells off 6% after hours based on a basically in line Q2 number. Our expectations would be for the stock to rebound by market opening tomorrow as the Conference Call likely calms the market concerned that revenues were a touch light in Q2.

What blows our mind is that TXN reported the highest quarterly operating profit on record, guided up for the next quarter and its not good enough for a market trading at low end valuations. The market appears to expect doom right around every corner yet its not happening. Q3 is going to be very strong for TXN even in the face of a dismal Q2 for the markets.

TXN is a 2.4% position in our Net Payout Yield Portfolio so we just love the part about the $750M used for share buybacks in Q2. Thats 2.5% of the outstanding float and 10% on an annual basis on top of a 2% dividend yield. Assuming the price action remains the same into the opening tomorrow, we'll likely add to this position.

Highlights from the Q2 report:

  • "Our Analog and Embedded Processing businesses turned in double-digit sequential growth, outpacing their respective markets and again confirming their ability to positively impact the financial performance of TI. As a result, we delivered our highest-ever quarterly operating profit," said Rich Templeton, TI chairman, president and chief executive officer.
  • "Orders were strong in the quarter, backlog increased and we expect to grow revenue again in the third quarter. Our steady investments in production capacity, even through last year's downturn, are now allowing us to meet higher demand levels from customers and simultaneously reduce lead times, which we believe is not only in the best interest of our customers, but will also help us gain share.
2Q10 additional financial information
  • Orders were $3.73 billion, up 33 percent from a year ago and up 2 percent from the prior quarter.
  • Inventory was $1.35 billion at the end of the quarter, up $286 million from a year ago and up $73 million from the prior quarter.
  • Capital expenditures were $283 million in the quarter compared with $47 million a year ago and $219 million in the prior quarter. Capital expenditures in the quarter were for analog wafer manufacturing equipment and for assembly/test manufacturing equipment.
  • The company used $750 million in the quarter to repurchase 29.7 million shares of its common stock and paid dividends of $147 million.


For the third quarter of 2010, TI expects:

  • Revenue: $3.55 – 3.85 billion
  • Earnings per share: $0.64 – 0.74

Disclosure: Long TXN


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