ADI jumps as consumer and automotive segments recover

Analog Devices (ADI) delivered better-than-expected Q4 FY24 results, with adjusted EPS of $1.67 surpassing the consensus estimate of $1.64, and revenue of $2.44 billion exceeding the forecasted $2.41 billion. The results were bolstered by a strong recovery in consumer and automotive segments, with consumer revenue jumping 31% year-over-year to $379.7 million, and automotive revenue at $717 million, significantly beating estimates of $657.1 million. The company's gross margin came in at 67.9%, slightly below the 68.1% consensus, while the adjusted operating margin was reported at 41.1%, close to expectations of 41.4%.

Key metrics revealed sequential growth across all end markets, signaling improving demand trends, especially in the automotive sector, which accounts for 29% of ADI’s revenue. Despite macroeconomic challenges, bookings picked up steadily in Q4 after a slowdown in Q3, particularly in the auto market, where inventory corrections had previously weighed on results. The industrial segment, representing a significant portion of ADI’s business, remained a softer point with revenue of $1.07 billion, below the $1.15 billion estimate, but this was offset by robust growth in consumer and automotive categories.

Customer inventory recovery was a critical theme for ADI, as demand from key segments like consumer electronics and automotive rebounded. CEO Vincent Roche noted that despite "unprecedented customer inventory headwinds" leading to a historic annual revenue decline to $9.4 billion from $12.3 billion in FY23, the company maintained operating margins above 40%, showcasing the resilience of its business model. This recovery supports cautious optimism for FY25, as ADI expects continued stabilization across end markets.

For Q1 FY25, ADI guided revenue of $2.35 billion, plus or minus $100 million, in line with analyst estimates. Adjusted EPS guidance of $1.53, at the midpoint, fell slightly below Wall Street expectations of $1.56, reflecting ongoing macro uncertainties that could temper the pace of recovery. However, management expressed confidence in returning to growth, aided by improving bookings and demand visibility across its diverse portfolio.

Strategic investments in engineering, manufacturing, and customer experience remain a cornerstone of ADI’s approach, as the company continues to position itself for long-term value creation. In FY24, ADI returned $2.4 billion to shareholders, including $1.8 billion in dividends and $0.6 billion in share repurchases, reflecting its robust cash flow generation of $3.1 billion in free cash flow. These efforts underscore the company's focus on maintaining financial strength and shareholder value.

Market reaction was positive, with ADI shares up over 5% premarket, extending a multi-day rally. Analysts highlighted ADI’s strong execution despite inventory challenges and a tough macro backdrop. The recovery in automotive and consumer demand, coupled with sequential growth, supports optimism for a stronger FY25, aligning with broader expectations for a 9% rebound in global semiconductor sales in 2025.

In summary, Analog Devices navigated a challenging fiscal year marked by inventory corrections and macro pressures with resilience and solid execution. Strong Q4 performance, improving end-market demand, and a cautiously optimistic FY25 outlook reinforce its position as a leading player in the semiconductor space, offering investors confidence in its ability to capture future growth opportunities.