It has been about a month since the last earnings report for MKS Instruments (MKSI - Free Report) . Shares have added about 3.9% 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 its most recent earnings report in order to get a better handle on the important drivers.
MKS Instruments Q3 Results Benefit from Advanced Markets Revenues
MKS Instruments reported third-quarter 2018 adjusted earnings of $1.88 per share, which comfortably beat the Zacks Consensus Estimate of $1.73 per share and increased 20.5% year over year.
Adjusted earnings exceeded the guided figure of $1.60-$1.86 per share, primarily driven by continued strength in advanced markets and efficient cost structure.
However, revenues of $487 million lagged the Zacks Consensus Estimate of $492 million. Revenues remained almost flat on a year-over-year basis.
Products revenues (87.5% of total revenues) were $426 million, down 0.6% from the year-ago quarter. Services revenues (12.5%) increased 6.1% year over year to approximately $61 million.
Sales to semiconductor customers decreased 8% year over year to $259.
Sales to advanced markets (47% of total revenue) were $228 million, up 11% from the year-ago quarter. Revenues from advanced markets primarily grew due to Newport acquisition along with strong organic growth.
The company’s Vacuum and Analysis segment reported sales of $286 million, a decrease of 7% year over year, primarily attributed to slowdown in semiconductor capital equipment spending.
Sales from the Light and Motion Division were $201 million, up 13% from the prior-year period.
MKS Instruments’ gross profit margin for the quarter came in at 47.6%, expanding 70 basis points (bps) year over year.
Adjusted EBITDA increased 4.7% to $143 million. Adjusted EBITDA margin in the reported quarter was 29.3%, which expanded 130 bps on a year-over-year basis.
Both research & development and sales, general & administrative expenses as a percentage of revenues declined 10 bps year over year, to 6.5% and 14.5%, respectively.
Acquisition and Integration cost declined 50 bps while restructuring cost expanded 30 bps on a year-over-year basis.
The company reported non-GAAP operating income of $129 million in the quarter, up 4.1% from the year-ago quarter. Adjusted operating margin was 26.5%, which expanded 100 bps on a year-over-year basis due to exposure to growing advanced markets.
Balance Sheet & Cash Flow
MKS Instruments exited the quarter with cash and cash equivalents of $399.8 million compared with $427.4 million as of Jun 30, 2018.
Long-term debt was $342.9 million compared with $342.1 million as of Jun 30, 2018.
As of Sep 30, 2018, cash from operating activities was $95.9 million compared with $109.6 million in the previous quarter.
Guidance for Q4
MKS Instruments anticipates to report revenues in the range of $420-$460 million.
Non-GAAP earnings are expected in the range $1.38-$1.64 per share.
Non-GAAP operating expenses are expected in the range of $103-$109 million. R&D and SG&A expenses are expected in the range of $34-$36 million and $69-$73 million, respectively.
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 -22.68% due to these changes.
Currently, MKS Instruments has a nice Growth Score of B, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
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 #4 (Sell). We expect a below average return from the stock in the next few months.