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Keysight (KEYS) Beats on Earnings in Q4, Revenues Rise Y/Y

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Keysight Technologies Inc. (KEYS - Free Report) reported non-GAAP earnings of 71 cents per share that increased 10.9% from the year-ago quarter. The figure also surpassed the Zacks Consensus Estimate of 65 cents per share.

Non-GAAP revenues surged 20.1% from the year-ago quarter to $902 million. Core revenues (excluding the impact of currency and revenue from acquisitions completed within the last twelve months) increased 3% year over year and were in line with management’s expectation.

Geographically, core revenues declined 3% in the Americas but grew 6% in Europe, 11% in Japan and 7% in rest of Asia.

Orders grew 27% year over year to cross $1 billion for the first time. Notably, core orders grew 11%. Management was positive about tapping key growth segments of a number of end markets. The company’s focus on launching new solutions for growth markets like 5G, Internet of Things (IoT), next-generation wireless, high-speed datacenters and automotive & energy are key catalysts.

For fiscal-year 2017, the company reported non-GAAP revenues of $3.2 billion, with a year-over-year increase of 10.9%. Non-GAAP net income was $2.53 per share, reflecting an increase of 4.1% from fiscal 2016.

Segment Details

Communications Solutions Group (CSG) includes commercial communications (CC) and aerospace, defense & government (ADG) end markets. Revenues increased 4% to $462 million.
CC revenues surged 10% year over year to $280 million backed by research and development (R&D) solutions related to technologies like 5G, 4.9G LTE-Advanced and Wi-Fi testing. ADG revenues declined to $182 million from $188 million in the year-ago quarter.

Keysight stated that orders for 5G solutions recorded 50% year-over-year growth in the just-reported quarter. The company’s partnerships with the likes of Verizon Communications Inc (VZ - Free Report) and Qualcomm Technologies, Inc., a subsidiary of Qualcomm Incorporated (QCOM - Free Report) are helping it to achieve 5G commercialization related milestones. Additionally, the acquisitions of Anite and AT4 Wireless have enriched the company’s 5G solutions portfolio.

Electronic Industrial Solutions (Group) revenues increased 3% to $206 million. Automotive and Energy was the key growth driver for this segment.

Management noted that growing demand for electric and hybrid cars bodes well for the company’s product portfolio, which was recently enhanced with the acquisition of Scienlab. Further, increasing electronic content in vehicles, radar technologies for autonomous driving and high-power devices and applications are driving demand for the company’s solutions in this end market. The company’s Detroit based Automotive Solution Center that was opened last month is another positive.

Ixia Solutions Group posted revenues of $124 million driven by strong demand for the company’s high-speed Ethernet based testing solutions as well as its security and application solutions.

Services Solutions Group (SSG) revenues were $110 million, up 2%. The year-over-year growth was driven by calibration services and increased sales of remarketed solutions.

Keysight Technologies Inc. Price, Consensus and EPS Surprise

Keysight Technologies Inc. Price, Consensus and EPS Surprise | Keysight Technologies Inc. Quote


Gross margin expanded 440 basis points (bps) on a year-over-year basis to 61.9%, backed by favorable product mix and addition of Ixia.

Segment-wise, CSG, SSG and EISG gross margin expanded 260 bps, 170 bps and 40 bps, respectively from the year-ago quarter.

Non-GAAP operating margin expanded 120 bps year over year to 20.1% in the quarter.

Balance Sheet & Cash Flow

Keysight ended the quarter with cash & cash equivalents of $818 million. Cash flow from operations was $64 million, while free cash flow was $46 million.


For the first quarter of fiscal 2018, the company expects non-GAAP revenues to be in the range of $780 to $820 million. The figure is anticipated to be affected by the Santa Rosa wildfires that resulted in the temporary closure of the company’s headquarters at the location. This negatively impacted operations.

For the first half of fiscal 2018, Keysight projects non-GAAP revenues to be $1.775 billion.

Non-GAAP earnings per share for first-quarter fiscal 2018 are projected in the range of 29 cents to 43 cents per share. For the first half of fiscal 2018, it is projected to be $1.29 per share.

Zacks Rank and Stock to Consider

Keysight carries a Zacks Rank #3 (Hold).

A better-ranked stock in the same sector is Arista Networks, Inc. (ANET - Free Report) , sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings growth rate for Arista Networks is projected to be 23.79%.

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