Fairchild Streamlines Operations to Lower Breakeven
Fairchild today announced results for the third quarter ended September 27, 2015. Fairchild reported third quarter sales of $342.1 million, down 4 percent from the prior quarter and 10 percent from the third quarter of 2014. Fairchild reported a third quarter net loss of $8.2 million or $0.07 per diluted share compared to a net loss of $0.9 million or $0.01 per diluted share in the prior quarter and a net loss of $1.0 million or $0.01 per diluted share in the third quarter of 2014. Gross margin was 33.6 percent compared to 30.9 percent in the prior quarter and 34.8 percent in the year-ago quarter. Included in the third quarter 2015 results were $27.7 million of restructuring and other expenses.
Fairchild reported third quarter adjusted gross margin of 34.1 percent, up 90 basis points from the prior quarter and 120 basis points lower than the third quarter of 2014. Adjusted gross margin excludes accelerated depreciation and inventory write-offs related to factory closures. Adjusted net income was $23.3 million or $0.20 per diluted share, compared to $13.9 million or $0.12 per diluted share in the prior quarter and $34.4 million or $0.28 per diluted share in the third quarter of 2014.
"We increased sales for our mobile, enterprise computing and telecom products during the quarter while reducing our distribution channel inventory dollars sequentially," said Mark Thompson, Fairchild's chairman, president and CEO. "Demand was in line with our revised guidance during the third quarter reflecting weakness from Asia and especially China in the industrial, appliance and consumer markets. Sales for our automotive products were seasonally lower in the third quarter but are still on track for another year of solid growth. We completed the remaining factory closures during the third quarter to improve our manufacturing cost structure. Also during the quarter, we streamlined our leadership structure which we expect will reduce operating expenses by $30 to $34 million annually. We believe these actions will significantly improve earnings and cash flow even at these lower revenue levels."
"Adjusted gross margin increased about a point sequentially due primarily to lower manufacturing costs and improved product mix," said Mark Frey, Fairchild's executive vice president and CFO. "R&D and SG&A expenses were $88.3 million, down 12 percent from the prior quarter due to spending controls, seasonal factors and the impact of the expense reduction program we announced in the quarter. Internal inventory increased by about 5 percent sequentially to 123 days as we reduced our shipments plan late in the quarter and built inventory to support higher mobile demand. Free cash flow was negative $9 million due to restructuring expenses and the increase in internal inventory. We repurchased 2.4 million shares of our stock for $35.2 million during the quarter and reduced our share count 5 percent from the year ago quarter. We ended the third quarter with total cash and securities exceeding our debt by $47 million."
"We expect sales to be in the range of $320 to $335 million for the fourth quarter," said Frey. "We expect adjusted gross margin to be 32.5 to 33.5 percent due primarily to lower factory utilization and sales partially offset by improved manufacturing costs. We anticipate R&D and SG&A spending to be $88 to $90 million due primarily to normal seasonality and the impact of the previously announced operating expense reduction program. The adjusted tax rate is forecast at 12 percent plus or minus 3 percentage points for the quarter. Consistent with our usual practices, we are not assuming any obligation to update this information, although we may choose to do so before we announce fourth quarter results."