Margins matter. The more Cirrus Logic (Nasdaq: CRUS) keeps of each buck it earns in revenue, the more money it has to invest in growth, fund new strategic plans, or (gasp!) distribute to shareholders. That's why I check on my holdings' margins at least once a quarter. I'm looking for the absolute numbers, comparisons to sector peers and competitors, and any trend that may tell me how strong Cirrus Logic's competitive position could be.
Here's the current margin snapshot for Cirrus Logic and some of its sector and industry peers, and direct competitors.
|
Company |
TTM Gross Margin |
TTM Operating Margin |
TTM Net Margin |
|---|---|---|---|
|
Cirrus Logic |
55% |
15.8% |
21% |
|
Linear Technology (Nasdaq: LLTC) |
77% |
48.2% |
30.9% |
|
Texas Instruments (NYSE: TXN) |
52.9% |
29.8% |
20.8% |
|
Silicon Laboratories (Nasdaq: SLAB) |
66.3% |
21.6% |
20.4% |
|
Analog Devices (NYSE: ADI) |
59.6% |
25.1% |
19.6% |
Source: Capital IQ, a division of Standard & Poor's.
Unfortunately, that chart doesn't tell us much about where Cirrus Logic has been, or where it's going. A company with rising gross and operating margins often fuels its growth by increasing demand for its products. If it sells more units while keeping costs in check, its profitability increases. Conversely, a company with gross margins that inch downward over time is often losing out to competition, and possibly engaging in a race to the bottom on prices. If it can't make up for this problem by cutting costs -- and most companies can't -- then both the business and its shares face a decidedly bleak outlook.
Of course, over the short term, the kind of economic shocks we recently experienced can drastically affect a company's profitability. That's why I like to look at five fiscal years' worth of margins, along with the results for the trailing 12 months (TTM), the last fiscal year, and last fiscal quarter (LFQ). You can't always reach a hard conclusion about your company's health, but you can better understand what to expect, and what to watch.
Here's the margin picture for Cirrus Logic over the past few years.
(Because of seasonality in some businesses, the numbers for the last period on the right -- the TTM figures -- aren't always comparable to the FY results preceding them.)
Here's how the stats break down:
- Over the past five years, gross margin peaked at 59.8% and averaged 56%. Operating margin peaked at 9.7% and averaged 5.2%. Net margin peaked at 27.1% and averaged 11.7%.
- Fiscal year 2010 gross margin was 53.7%, 230 basis points worse than the 5-year average. Fiscal year 2010 operating margin was 9.7%, 450 basis points better than the 5-year average. Fiscal year 2010 net margin was 17.4%, 570 basis points better than the 5-year average.
- TTM gross margin is 55%, 100 basis points worse than the 5-year average. TTM operating margin is 15.8%, 1,060 basis points better than the 5-year average. TTM net margin is 21%, 930 basis points better than the 5-year average.
- LFQ gross margin is 57.1%, 490 basis points better than the prior year quarter. LFQ operating margin is 21.5%, 2,950 basis points better than the prior year quarter. LFQ net margin is 21.5%, 2,090 basis points better than the prior year quarter.
With recent 12-month-period operating margins exceeding historical averages, Cirrus Logic looks like it is doing fine.
If you take the time to read past the headlines and crack a filing now and then, you're probably ahead of 95% of the market's individual investors. By keeping an eye on the health of your companies' margins, you can spot potential trouble early, or figure out whether the numbers merit Mr. Market's enthusiasm or pessimism. Let us know what you think of the health of the margins at Cirrus Logic in the comments box below. Or, if you're itching to learn more, head on over to our quotes page to view the filings directly.
