23 January 2010

INTC: Financial Gauge Analysis for the December 2009 Quarter

Intel (NASDAQ: INTC) earned $0.40 per diluted share in the fourth quarter of 2009, which ended on 26 December, up from $0.04 in the same quarter of the previous year. 

We have already reported on the Income Statement for the quarter and compared the figures on each line to our "look-ahead" estimates.  We subsequently updated the Cash Management, Growth, Profitability and Value metrics for Intel.

This post reports on the metrics and the associated financial gauge scores.  The metrics were calculated using the financial statements in the earnings announcement.

Because the announcement did not include a complete Cash Flow statement, we had to estimate a few values to compute the gauge scores.  We will make any necessary adjustments after Intel files a complete 10-K report with the SEC.

Intel Corporation is the foremost manufacturer of integrated circuits for computers, servers, hand-held devices, and communication products.  Some background information about Intel and the business environment in which it is currently operating can be found in the beginning of the look-ahead.

In summary, Intel's latest quarterly results has produced the following changes to the gauge scores:

  • Overall: 32 of 100 (down from 17)

Although 32 points is not a particularly wonderful score, the increase from the previous quarter could be more significant. 

The current and historical values for the financial metrics that determine the gauge scores are listed below, with some brief commentary.

Cash Management26 Dec 200926 Sep 200927 Dec 20085-yr Avg
Current Ratio2.
Debt/CFO (years) (*)
Inventory/CGS (days)70.472.074.374.6
Finished Goods/Inventory35.1%41.0%41.6%37.6%
Days of Sales Outstanding (days)20.923.423.628.9
Working Capital/Revenue34.3%35.4%34.0%33.2%
Cash Conversion Cycle Time (days)43.945.046.955.3
Gauge Score (0 to 25)1771512
* Based on an estimate of Cash Flow in the latest quarter.

Leaner Inventories and fewer Days of Sales Outstanding, both of which indicate improved cash efficiency, led to the big jump in the Cash Management gauge score.

With respect to Inventory, the decline in the Inventory-to-CGS signifies that inventory is turning over more quickly, which is a result consistent with the more favorable sales environment.  The lower Finished Goods ratio may be suggesting that sales were more robust than management expected.

The rather significant decline in the Cash Conversion Cycle Time signifies that Intel is using cash more efficiently. 

Debt is low relative to Equity and the Cash Flow that services the debt.  Working Capital is consistent with the company's historical norm. 

Growth26 Dec 200926 Sep 200927 Dec 20085-yr Avg
Revenue growth-6.5%-18.2%-2.0%-1.7%
Operating Profit growth22.0%7.5%4.8%4.1%
CFO growth (*)
Net Income growth-17.4%-68.3%-24.1%39.6%
Gauge Score (0 to 25)6108
Revenue, CFO, and Net Income growth rates compare the last four quarters to the four previous quarters.
The Operating Profit rate is the annualized rate of growth in
Operating Profit after Taxes over the last 16 quarters.
* Based on an estimate of Cash Flow in the latest quarter.

The strong results of the fourth quarter pushed the Growth gauge up, but negative trailing-year growth rates for Revenue and Net Income kept the increase from being more substantial.

Revenue as a percentage of Assets rebounded sharply, but it remained below last year's level.

We were initially puzzled by the magnitude of the increase in the Operating Profit growth rate.  A little investigating indicated that the low effective tax rate of the last year gave an extra boost to operating profits.

Special charges exacerbated the Net Income rate of decline.  If charges of this sort aren't repeated, the growth rate should turn much higher later this year.

Profitability26 Dec 200926 Sep 200927 Dec 20085-yr Avg
Operating Expenses/Revenue75.3%79.6%74.3%75.5%
Free Cash Flow/Invested Capital (*)
Accrual Ratio (*)-0.3%-1.7%0.5%8.3%
Gauge Score (0 to 25)1391411

* Based on an estimate of Cash Flow in the latest quarter.

The Profitability gauge rose due to a lower Operating Expense ratio, the recovery in the Return on Invested Capital, and the improved Free Cash Flow. 

Operating Expenses as percentage of Revenue soared earlier in 2009 when falling Revenue made manufacturing and other business processes less efficient.  The better performance later in the year brought efficiency back up.

When the 10-K is published, we will need to recalculate the two profitability metrics related to Cash Flow.

Value26 Dec 200926 Sep 200927 Dec 20085-yr Avg
P/E vs. S&P 500 P/E
Enterprise Value/Cash Flow (EV/CFO) (*)
Gauge Score (0 to 25)10168
Share Price ($)$20.33$19.37$14.18-
* Based on an estimate of Cash Flow in the latest quarter.

With Net Income lower in the entirety of 2009 than 2008, and the share price up over 40 percent, the Value gauge could not improve.  The antitrust fine paid to the EU in the second quarter of 2009 and the more recent settlement with AMD exacerbated the trailing-year earnings decline. 

The Price-to-Revenue ratio avoids complications such as special charges and variable tax rates. 

Overall26 Dec 200926 Sep 200927 Dec 20085-yr Avg
Gauge Score (0 to 100)32175540

After a tough start to the beginning of 2009, an excellent fourth quarter stirred the Overall gauge.  The increase in the score was, however, constrained because some figures (especially those affected by the billion-dollar special charges) remained weak on a year-on-year basis. 

Barring further setbacks, the trailing year comparisons should become more favorable in 2010.

Full disclosure: Long INTC at time of writing.

No comments:

Post a Comment