Strong Yearly Growth as IVAC Beats

Intevac Inc. ( IVAC - Snapshot Report ) reported fourth quarter 2010 diluted earnings of 5 cents per share beating the Zacks Consensus Estimate of 3 cents per share. However, the EPS fell 44.4% year over year and 91.4% sequentially.

For full year 2010, Intevac reported diluted earnings per share of $1.22 which marginally went ahead of the Zacks Consensus Estimate for 2010 of $1.21 per share. This also compares favorably with the net loss of 46 cents in prior year and therefore a surge of 165.2%.

Management cited strong operational performance as the resultant for the strong yearly growth of the EPS. Management said that company’s highly flexible operational model showcased the ability of quick production to meet hard drive demand in the second and third quarter of the reported year.

The Quarter & The Year

Revenues for the quarter increased 5.8% from year ago quarter to $36.2 million and included $26.8 million of Equipment revenues and Intevac Photonics revenues of $9.4 million. The reported revenue was just short of Zacks Consensus Revenue Estimate of $37 million.

For 2010, Intevac reported revenue of $202.5 million which was fell short of Zacks Consensus Revenue Estimate of $204 million. Intevac’s full year revenue however increased 159.6% from prior year and included $168.3 million of Equipment revenues and Intevac Photonics revenues of $34.3 million.

Gross profit for the quarter decreased 4.6% year on year to $14.6 million. However gross profit for the year ended increased 168.2% to $87.7 million. Consolidated gross margin was 40.3% in the quarter compared with 44.6% in the same quarter previous year. For full year the gross margin advanced 1.3 percentage points compared with 2009 to 43.3%

Operating expense increased 29.5% year over year to $14.5 million in the quarter and for full year 2010 the operating expense increased 12.6% to $56.4 million. The yearly growth was mainly due to reinstatement of the company’s variable compensation programs

The Way Ahead

Management expects to launch several new products in 2011 for Equipment business and expand the product portfolio for the large and growing solar cell manufacturing market. The company expects to do so while maintaining technology and operational leadership in the hard disk drive media processing market.

In the next quarter, management also wants to ship the company’s first Lean Solar crystalline silicon deposition system, and expects to earn revenue on Continuum semiconductor mainframe shipments. Management further expects t ramp product based revenue from the Photonic business.

Conclusion

Estimates for the quarter, current year and for the next year had been stable in the run-up to the earnings release, with no analysts raising or lowering their estimates. The full-year estimate for next year remains at 82 cents.

We note that Intevac has consistently exceeded estimates over the past year or so. The average surprise in the preceding 4 quarters is a positive 161.08%, and another positive surprise was therefore expected.

We currently have a Zacks #3 Rank for Intevac which translates into a Hold rating, on short term basis. However, Intevac’s competitors, namely Entegris, Inc. ( ENTG - Snapshot Report ) , Brooks Automation Inc. ( BRKS - Snapshot Report ) and MKS Instruments Inc. ( MKSI - Snapshot Report ) , all have a Zacks #1 Rank which translates to Strong Buy rating on short term basis. For long term, we currently have a Neutral recommendation for Intevac.