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Keysight (KEYS) Q2 Earnings In Line, Revenues Beat Estimates

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Keysight Technologies Inc. (KEYS - Free Report) reported second-quarter fiscal 2018 non-GAAP earnings of 83 cents per share matching the Zacks Consensus Estimate. However, the figure increased 29.7% from the year-ago quarter..

Net revenues surged 31.5% from the year-ago quarter to $990 million and surpassed the Zacks Consensus Estimate of $963 million. Non-GAAP core revenues (excluding the impact of currency and revenue from acquisitions completed within the last 12 months) increased 18% year over year to $999 million.

Geographically, core revenues increased 29% in the Americas, 10% in Europe, 19% in Japan and 11% in rest of Asia.

Orders grew 23% year over year to $987 million during the quarter. Notably, core orders grew 10%. 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.

Segment Details

Communications Solutions Group (“CSG”) includes commercial communications (“CC”) and aerospace, defense & government (“ADG”) end markets. Revenues climbed 27% to $536 million.

CC revenues increased year over year backed by research and development (R&D) solutions related to technologies like 5G, 400G LTE-Advanced and Wi-Fi testing. ADG revenues grew 27% for the third consecutive quarter.

Keysight stated that orders for 5G solutions recorded double-digit growth year over year for the 10th consecutive quarter. The company’s acquisitions of Anite and AT4 Wireless have enriched the company’s 5G solutions portfolio.

Electronic Industrial Solutions (Group) revenues increased 16% to $255 million. Automotive and Energy was the key catalyst 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 buyout of Scienlab. Further, increasing electronic content in vehicles, radar technologies for autonomous driving and high-power devices along with applications are driving demand for the company’s solutions in this end market.

Ixia Solutions Group posted revenues of $90 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 $118 million, up 15%. Calibration services and increased sales of remarketed solutions drove year-over-year growth.

Gross margin during the quarter came in at 60.3%, on the back of favorable product mix and addition of Ixia. Non-GAAP operating margin expanded 100 bps year over year to 20.4% in the quarter.

Balance Sheet & Cash Flow

Keysight ended the quarter with cash & cash equivalents of $784 million. Cash flow from operations was $111 million, while free cash flow was $77 million.

During the quarter, the company repurchased approximately 770,000 shares for a total of $40 million.

Guidance

For the third quarter of fiscal 2018, the company expects non-GAAP revenues to be in the range of $942-$972 million. The Zacks Consensus Estimate for revenues is pegged at $963 million.

Non-GAAP earnings per share for third-quarter fiscal 2018 are projected in the range of 72-82 cents per share. The Zacks Consensus Estimate for revenues is pegged at 83 cents per share.

Zacks Rank and Stock to Consider

Keysight carries a Zacks Rank #3 (Hold).

Few better-ranked stocks in the broader technology sector include NVIDIA Corporation (NVDA - Free Report) , Texas Instruments Incorporated (TXN - Free Report) and Groupon, Inc. (GRPN - Free Report) , all sporting a Zacks Rank #1 (Strong Buy).  You can see the complete list of today’s Zacks #1 Rank stocks here.

NVIDIA, Texas Instruments and Groupon have a long-term expected EPS growth rate of 10.3%, 9.6% and 6.5%, respectively.

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