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Why Is Mercury Systems (MRCY) Up 26.4% Since Last Earnings Report?
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A month has gone by since the last earnings report for Mercury Systems (MRCY - Free Report) . Shares have added about 26.4% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Mercury Systems 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.
Mercury Systems' Q2 Earnings & Revenues Miss Estimates
Mercury Systems reported lower-than-expected second-quarter fiscal 2022 results. The company reported non-GAAP earnings of 39 cents per share, which missed the Zacks Consensus Estimate of 41 cents.
Moreover, Mercury Systems’ bottom line declined 27.8% from 54 cents per share reported in the year-ago quarter. The year-over-year decline was mainly due to an unfavorable program mix and increased operating expenses.
Mercury Systems’ non-GAAP revenues of $220.4 million missed the Zacks Consensus Estimate of $223 million. However, it increased 5% year over year, mainly due to contributions from newly acquired businesses.
Quarterly Details
Mercury Systems’ acquired businesses (17% of the total revenues) — Physical Optics Corporation, Pentek, Avalex Technologies and Atlanta Micro — cumulatively contributed $37.5 million to second-quarter revenues. MRCY noted that acquired business revenues were slightly less than expectations due to contracting delays.
Additionally, organic revenues (83% of the total revenues) declined 13% year over year and contributed $183 million to second-quarter sales. The decline was mainly due to contracting delays.
Mercury Systems’ total bookings were $236.9 million, resulting in a 1.08 book-to-bill ratio. The company’s largest bookings in the reported quarter were a classified C2 program, MH-60, P8, CDS, Autumn and F-16.
The company ended the quarter with a backlog of $953.7 million, up $8.4 million on a year-over-year basis. Within the next 12 months, products worth $572.4 million from this order backlog are expected to be shipped.
Operating Details
Mercury Systems’ gross profit was $87.2 million, down 1.6% year over year. Moreover, its gross margin contracted 250 basis points (bps) to 39.6%, mainly due to a negative impact from the inclusion of Physical Optics Corporation and the higher mix of new programs and development work.
Adjusted EBITDA slumped 15.9% year over year to $38.1 million, while margin contracted 420 bps to 17.3%. The decline was mainly due to lower gross margin and negative operating leverage as organic revenues declined year over year.
Total operating expenses increased 24.2% to $87.6 million. SG&A expenses as a percentage of revenues increased 140 bps to 16.4%. Research & development expenses as a percentage of revenues contracted 50 bps to 12.9%.
Balance Sheet & Other Details
As of Dec 31, 2021, MRCY’s cash and cash equivalents were $105.2 million compared with $95.8 million as of Oct 1, 2021. Long-term debt was $451.5 million at the end of the second quarter.
The company generated operating cash flow of $6.8 million in the second quarter and $4.8 million in the first half of fiscal 2022. It generated free cash flow of $10.2 million in the second quarter and $2.8 million in the first half of fiscal 2022.
Guidance
Mercury Systems reiterated its guidance for fiscal 2022. The company continues to expect fiscal 2022 revenues between $1 billion and 1.03 billion. Adjusted EBITDA is expected in the range of $220-$227 million, while adjusted earnings for fiscal 2022 are estimated in the band of $2.51-$2.60 per share.
For the third quarter, Mercury Systems projects revenues between $245 million and $255 million. Adjusted EBITDA is anticipated between $50 million and $53 million. Adjusted earnings are projected in the range of 55-59 cents per share.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates.
The consensus estimate has shifted -24.69% due to these changes.
VGM Scores
Currently, Mercury Systems has a poor Growth Score of F, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% 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. Notably, Mercury Systems has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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Why Is Mercury Systems (MRCY) Up 26.4% Since Last Earnings Report?
A month has gone by since the last earnings report for Mercury Systems (MRCY - Free Report) . Shares have added about 26.4% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Mercury Systems 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.
Mercury Systems' Q2 Earnings & Revenues Miss Estimates
Mercury Systems reported lower-than-expected second-quarter fiscal 2022 results. The company reported non-GAAP earnings of 39 cents per share, which missed the Zacks Consensus Estimate of 41 cents.
Moreover, Mercury Systems’ bottom line declined 27.8% from 54 cents per share reported in the year-ago quarter. The year-over-year decline was mainly due to an unfavorable program mix and increased operating expenses.
Mercury Systems’ non-GAAP revenues of $220.4 million missed the Zacks Consensus Estimate of $223 million. However, it increased 5% year over year, mainly due to contributions from newly acquired businesses.
Quarterly Details
Mercury Systems’ acquired businesses (17% of the total revenues) — Physical Optics Corporation, Pentek, Avalex Technologies and Atlanta Micro — cumulatively contributed $37.5 million to second-quarter revenues. MRCY noted that acquired business revenues were slightly less than expectations due to contracting delays.
Additionally, organic revenues (83% of the total revenues) declined 13% year over year and contributed $183 million to second-quarter sales. The decline was mainly due to contracting delays.
Mercury Systems’ total bookings were $236.9 million, resulting in a 1.08 book-to-bill ratio. The company’s largest bookings in the reported quarter were a classified C2 program, MH-60, P8, CDS, Autumn and F-16.
The company ended the quarter with a backlog of $953.7 million, up $8.4 million on a year-over-year basis. Within the next 12 months, products worth $572.4 million from this order backlog are expected to be shipped.
Operating Details
Mercury Systems’ gross profit was $87.2 million, down 1.6% year over year. Moreover, its gross margin contracted 250 basis points (bps) to 39.6%, mainly due to a negative impact from the inclusion of Physical Optics Corporation and the higher mix of new programs and development work.
Adjusted EBITDA slumped 15.9% year over year to $38.1 million, while margin contracted 420 bps to 17.3%. The decline was mainly due to lower gross margin and negative operating leverage as organic revenues declined year over year.
Total operating expenses increased 24.2% to $87.6 million. SG&A expenses as a percentage of revenues increased 140 bps to 16.4%. Research & development expenses as a percentage of revenues contracted 50 bps to 12.9%.
Balance Sheet & Other Details
As of Dec 31, 2021, MRCY’s cash and cash equivalents were $105.2 million compared with $95.8 million as of Oct 1, 2021. Long-term debt was $451.5 million at the end of the second quarter.
The company generated operating cash flow of $6.8 million in the second quarter and $4.8 million in the first half of fiscal 2022. It generated free cash flow of $10.2 million in the second quarter and $2.8 million in the first half of fiscal 2022.
Guidance
Mercury Systems reiterated its guidance for fiscal 2022. The company continues to expect fiscal 2022 revenues between $1 billion and 1.03 billion. Adjusted EBITDA is expected in the range of $220-$227 million, while adjusted earnings for fiscal 2022 are estimated in the band of $2.51-$2.60 per share.
For the third quarter, Mercury Systems projects revenues between $245 million and $255 million. Adjusted EBITDA is anticipated between $50 million and $53 million. Adjusted earnings are projected in the range of 55-59 cents per share.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates.
The consensus estimate has shifted -24.69% due to these changes.
VGM Scores
Currently, Mercury Systems has a poor Growth Score of F, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% 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. Notably, Mercury Systems has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.