STMicroelectronics Reports Q3 2018 Financial Results

Gross profit totaled $1.0 billion, representing a year-over-year increase of 18.6%. Gross margin was 39.8%, 20 basis points lower than the mid-point of the Company's guidance mainly due to product group mix. Gross margin increased 20 basis points year-over-year, largely driven by a favorable mix shift toward higher value products and improved manufacturing efficiency.

Operating income was $398 million, compared to $281 million in the year-ago quarter, with all product groups growing revenues and with ADG and AMS delivering improved profitability. The Company's operating margin increased 270 basis points on a year-over-year basis to 15.8% of net revenues, compared to 13.1% in the 2017 third quarter.

By product group, compared with the year-ago quarter:

Automotive and Discrete Group (ADG)

  • Revenue grew double-digits, in both Automotive and Power Discrete.
  • Operating profit increased by 36.2% to $116 million, mainly due to higher revenue and associated gross profit. Operating margin increased to 12.8% from 10.9%.

      
Analog, MEMS and Sensors Group (AMS):

  • Revenue grew triple-digits in Imaging and was supported by growth in both Analog and MEMS.
  • Operating profit increased by 82.4% to $157 million, mainly due to higher revenue and associated gross profit. Operating margin increased to 17.5% from 13.1%.

      
Microcontrollers and Digital ICs Group (MDG):

  • Revenue grew in Digital ICs while Microcontrollers / Memories were stable.
  • Operating profit decreased by 5.4% to $119 million mainly due to less favorable mix between Microcontrollers and other products. Operating margin decreased to 16.6% from 18.0%.

Net income and diluted earnings per share increased to $369 million and $0.41, respectively, compared to $236 million and $0.26, respectively, in the year-ago quarter.

Cash Flow and Balance Sheet Highlights(1)

        Trailing 12 Months
US$ in millions Q3 2018 Q2 2018 Q3 2017 Q3 2018 Q3 2017 TTM Change
Net cash from operating activities $373 $360 $433 $1,775 $1,469 18.4%
Free cash flow (non-U.S. GAAP) $114 $(40) $50 $314 $299 (4.6)%

(1)  Q3 2017 amounts have been adjusted to reflect the impact of new 2018 accounting guidance, which requires, on comparative periods, the reclassification as operating cash flows of the implied interest paid in the settlement of our convertible bonds.

Capital expenditure payments, net of proceeds from sales, were $242 million in the third quarter and $983 million for the year-to-date period. In the year-ago quarter, capital expenditures were $365 million.

Inventory at the end of the quarter was $1.59 billion, up from $1.56 billion in the prior quarter. Day sales of inventory at quarter-end was 95 days, down from 103 days in the prior quarter.

Free cash flow (non-U.S. GAAP) was $114 million in the third quarter and $170 million in the year-to-date period.

The Company paid cash dividends totaling $54 million in the third quarter and $162 million year-to-date.

ST's net financial position (non-U.S. GAAP) was $447 million at September 29, 2018 compared to $411 million at June 30, 2018 and reflected total financial resources of $2.17 billion and total financial debt of $1.72 billion.

Business Outlook

The Company's guidance for the 2018 fourth quarter is:

  • Net revenues are expected to increase about 5.7% sequentially, plus or minus 350 basis points;
  • Gross margin of about 39.8%, plus or minus 200 basis points;
  • This outlook is based on an assumed effective currency exchange rate of approximately $1.18 = €1.00 for the 2018 fourth quarter and includes the impact of existing hedging contracts.
  • The fourth quarter will close on December 31, 2018.

            
Conference Call and Webcast Information

STMicroelectronics will conduct a conference call with analysts, investors and media to discuss its third quarter 2018 financial results and current business outlook today at 9:30 a.m. Central European Time (CET) / 3:30 a.m. U.S. Eastern Time (ET). A live webcast (listen-only mode) of the conference call will be accessible at ST's website, http://investors.st.com, and will be available for replay until November 9, 2018.

Use of Supplemental Non-U.S. GAAP Financial Information

This press release contains supplemental non-U.S. GAAP financial information.

Readers are cautioned that these measures are unaudited and not prepared in accordance with U.S. GAAP and should not be considered as a substitute for U.S. GAAP financial measures. In addition, such non-U.S. GAAP financial measures may not be comparable to similarly titled information from other companies.

See the Appendix of this press release for a reconciliation of the Company's non-U.S. GAAP financial measures to their corresponding U.S. GAAP financial measures. To compensate for these limitations, the supplemental non-U.S. GAAP financial information should not be read in isolation, but only in conjunction with the Company's consolidated financial statements prepared in accordance with U.S. GAAP.

Forward-looking Information

Some of the statements contained in this release that are not historical facts are statements of future expectations and other forward-looking statements (within the meaning of Section 27A of the Securities Act of 1933 or Section 21E of the Securities Exchange Act of 1934, each as amended) that are based on management's current views and assumptions, and are conditioned upon and also involve known and unknown risks and uncertainties that could cause actual results, performance, or events to differ materially from those anticipated by such statements, due to, among other factors:

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