It has been about a month since the last earnings report for MKS Instruments (MKSI Quick QuoteMKSI - Free Report) . Shares have added about 4.4% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is MKS Instruments due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

MKS Instruments Q1 Earnings Beat, Revenues Up Y/Y

MKS Instruments reported first-quarter 2022 adjusted earnings of $2.71 per share, which beat the Zacks Consensus Estimate by 4.63% and improved 6% year over year.

Revenues of $742 million missed the consensus mark by 1.06% but improved 7% year over year. Global supply chain challenges and lower industry demand for certain products led to a decline in revenues.

Products revenues (87.3% of total revenues) were $648 million, up 7.1% year over year. Services revenues (12.7% of total revenues) increased 5.6% year over year to $94 million.

Quarterly Update

Revenues from the semiconductor market (65.8% of total revenues) advanced 19% year over year to $488 million.

Revenues from advanced electronics market (11.1% of total revenues) were $82 million, down 29% year over year. The downside was due to low demand for flexible PCB via drilling equipment in the industry.

Revenues from the specialty industrial market (23.2% of total revenues) increased 2% year over year to $172 million.

Operating Details

In the first quarter, adjusted EBITDA increased 6% year over year to $211 million. Adjusted EBITDA margin decreased by 20 bps on a year-over-year basis to 28.4%.

Research & development, as a percentage of revenues, increased by 20 bps year over year. Meanwhile, sales, general & administrative expenses, as a percentage of revenues, declined 140 bps on a year-over-year basis.

MKS Instruments reported non-GAAP operating income of $190 million, up 6.1% year over year. Adjusted operating margin decreased by 20 bps on a year-over-year basis to 25.6%. Rising input cost is one the primary factors responsible for decline in operating margin.

Balance Sheet & Cash Flow

As of Mar 31, 2022, MKS Instruments had cash and short-term investments of $1.1 billion compared with $910 million as of Mar 31, 2021.  As of December 31, 2021, MKS Instruments had cash and cash equivalent of $ 966 million.

As of Mar 31, 2022, secured term loan principal outstanding was $822 million. The company had $100 million of incremental borrowing capacity under an asset-based line of credit, subject to certain borrowing base requirements.

Cash flow from operations was $41 million in the first quarter compared with the fourth quarter 2021’s figure of $194 million. Free cash flow was $22 million compared with $171 million reported in the previous quarter.

MKS Instruments paid out dividends worth $12 million in the reported quarter.

Q2 Guidance

For the second quarter of 2022, MKS Instruments anticipates revenues to be $730 million (+/- $30 million).

Non-GAAP earnings are expected to be $2.28 per share (+/- 24 cents).

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 -17.23% due to these changes.

VGM Scores

At this time, MKS Instruments has an average Growth Score of C, though it is lagging a bit on the Momentum Score front with a D. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. 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. It's no surprise MKS Instruments has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.