A month has gone by since the last earnings report for Analog Devices (ADI Quick QuoteADI - Free Report) . Shares have added about 0.1% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Analog Devices due for a pullback? 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 drivers.

Analog Devices Miss Q3 Earnings & Revenue Estimates

Analog Devices delivered third-quarter fiscal 2023 adjusted earnings of $2.49 per share, missing the Zacks Consensus Estimate by 1.6%. The bottom line declined by 1% from the year-ago fiscal quarter’s reported figure.

Revenues of $3.08 billion lagged the Zacks Consensus Estimate of $3.09 billion. The top line fell 1% from the year-ago fiscal quarter’s reported figure.

Softness in communications and consumer markets was a major negative.

Nevertheless, the company witnessed solid momentum across the industrial and automotive markets during the reported quarter.

Revenues by End Markets

Industrial: The market generated revenues of $1.63 billion (accounting for 53% of the total revenues), which grew 4% year over year.

Communications: Revenues from the market were $380.5 million (12% of revenues), decreasing 23% from the year-ago fiscal quarter’s reported figure.

Automotive: Revenues from the market summed up to $747.6 million (24% of revenues), up 15% from the year-ago fiscal quarter’s level.

Consumer: The market generated revenues of $319.2 million (9% of revenues), reflecting a 21% decline from the year-ago fiscal quarter’s reported figure.

Operating Details

The adjusted gross margin contracted 190 basis points (bps) from the year-ago fiscal quarter’s level to 72.2%.

Adjusted operating expenses were $752.03 million, up 0.7% from the year-ago fiscal quarter’s level. As a percentage of revenues, adjusted operating expenses were 24.4%, expanding 40 bps year over year.

The adjusted operating margin contracted 230 bps on a year-over-year basis to 47.8% in the reported quarter.

Balance Sheet & Cash Flow

As of Jul 29, 2023, cash and cash equivalents were $1.15 billion, down from $1.18 billion as of Apr 29, 2023.

Long-term debt was $6.44 billion at the end of the fiscal third quarter compared with $6.48 billion at the end of the fiscal second quarter.

Net cash provided by operations was $1.14 billion in the reported quarter, up from $1.08 billion in the prior fiscal quarter.

ADI generated $818 million of free cash flow in the fiscal third quarter.

Analog Devices returned $1.1 billion to its shareholders in the fiscal third quarter, of which dividend payments accounted for $430 million and repurchased shares amounted to $687 million.

Guidance

For fourth-quarter fiscal 2023, ADI expects revenues of $2.70 billion (+/- $100 million).

Non-GAAP earnings are expected to be $2.00 (+/- $0.10) per share.

Analog Devices anticipates non-GAAP operating margins of 44% (+/- 70 bps).

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended downward during the past month.

The consensus estimate has shifted -17.99% due to these changes.

VGM Scores

Currently, Analog Devices has an average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. Following the exact same course, the stock was allocated a grade of F on the value side, putting it in the lowest quintile for this investment strategy.

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

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Analog Devices has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.