It has been about a month since the last earnings report for Microchip Technology (MCHP Quick QuoteMCHP - Free Report) . Shares have lost about 10.9% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Microchip Tech due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Microchip Q1 Earnings Top Estimates, Revenues Rise Y/Y

Microchip Technology reported first-quarter fiscal 2023 non-GAAP earnings of $1.37 per share, which beat the Zacks Consensus Estimate by 2.24% and surged 38.4% on a year-over-year basis.

Net sales of $1.96 billion increased 25.1% year over year and surpassed the Zacks Consensus Estimate by 0.36%.

Quarter in Detail

In terms of product line, microcontroller sales grew 17.8% year over year and 1.6% sequentially to $1.06 billion, accounting for 54.1% of revenues.

Analog net sales of $580 million increased 12.5% sequentially and 34.2% year over year. Analog contributed 29.5% to total revenues.

Other revenues of $320.6 million accounted for 16.3% of revenues.

Geographically, revenues from the Americas, Europe and Asia contributed 25%, 20% and 55% to net sales, respectively.

Non-GAAP gross margin expanded 230 basis points (bps) on a year-over-year basis to 67.1%, primarily benefiting from a favorable product mix.

Non-GAAP research & development expenses, as a percentage of net sales, declined 80 bps year over year to 12.7%. Non-GAAP selling, general & administrative (SG&A) expenses, as a percentage of net sales, declined 70 bps to 8.9%.

Non-GAAP operating expenses, as a percentage of net sales, declined 150 bps year over year to 21.5%.

Consequently, non-GAAP operating margin expanded 380 bps on a year-over-year basis to 45.6%.

Balance Sheet & Cash Flow

As of Jun 30, 2022, cash and short-term investments totaled $379.1 million compared with $319.4 million as of Mar 31, 2022.

As of Jun 30, 2022, its total debt (long-term plus current portion) was $7.56 billion. The company paid down $233.6 million of debt in the reported quarter.

For the fiscal first quarter, cash flow from operating activities was $840.4 million.

Microchip announced a quarterly dividend of 30.1 cents per share, up 9.1% sequentially and 37.8% from the year-ago quarter.

Guidance

Microchip forecasts second-quarter fiscal 2022 net sales in the range of $2.023-$2.101 billion, indicating 5% sequential growth. At the mid-point of this guidance, net sales are expected to grow 25% year over year.

Non-GAAP earnings are anticipated to be $1.44 per share, indicating 34.6% year-over-year growth.

Non-GAAP gross margin is anticipated to be 67.5%.

Non-GAAP operating expenses are projected to be 21.5%.

Non-GAAP operating margin is anticipated to be 46%.

Capital expenditures for the fiscal second quarter are expected between $130 million and $150 million. Capital expenditures for fiscal 2023 are estimated between $500 million and $550 million.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates revision.

The consensus estimate has shifted 5.96% due to these changes.

VGM Scores

Currently, Microchip Tech has a strong Growth Score of A, though it is lagging a bit on the Momentum Score front with a B. Following the exact same course, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Microchip Tech has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.