A month has gone by since the last earnings report for MKS Instruments (MKSI - Free Report) . Shares have lost about 18.5% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is MKS Instruments due for a breakout? 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 catalysts.
MKS Instruments Q1 Earnings & Revenues Beat Estimates
MKS Instruments reported first-quarter 2019 adjusted earnings of $1.12 per share that beat the Zacks Consensus Estimate by a nickel. However, earnings declined 45.9% year over year and 27.3% sequentially.
Revenues of $463.6 million also beat the Zacks Consensus Estimate of $461 million. However, the top line declined 16.4% year over year, primarily due to lower spending in the semiconductor market. Sequentially, revenues increased 0.7%.
Products revenues (85.7% of total revenues) were $397.4 million, down 20% from the year-ago quarter and 1.2% sequentially.
Services revenues (14.3%) increased 14.9% year over year and 13.6% quarter over quarter to $66.2 million.
Sales to semiconductor customers decreased 10% sequentially to $221 million.
Sales to Advanced Markets were $243 million, up 8% sequentially, driven by strong contribution from Electro Scientific Industries, the acquisition of which was closed during the first quarter.
MKS Instruments’ non-GAAP gross margin for the quarter was 43.8%, down 360 basis points (bps) year over year and 170 bps sequentially.
Adjusted EBITDA declined 37.2% from the year-ago quarter and 15.7% sequentially to $103.6 million. Adjusted EBITDA margin contracted 740 bps on a year-over-year basis and 430 bps on a sequential basis to 22.4%.
Research & development (R&D), and sales, general & administrative (SG&A) expenses as percentage of revenues increased 210 bps and 280 bps year over year to 8.4% and 17.8%, respectively.
Sequentially, R&D and SG&A expenses as percentage of revenues increased 140 bps and 300 bps.
While acquisition and Integration costs were $30.2 million, restructuring costs were $0.2 million in the reported quarter.
MKS Instruments’ reported non-GAAP operating income of $81.9 million, down 43.6% from the year-ago quarter and 25.1% sequentially. Adjusted operating margin was 17.7%, which contracted 850 bps on a year-over-year basis and 610 bps sequentially.
Balance Sheet & Cash Flow
MKS Instruments exited the quarter with cash and cash equivalents of $418 million compared with $644.3 million as of Dec 31, 2018.
Long-term debt was $976.8 million compared with $343.8 million as of Dec 31, 2018.
Cash from operating activities was $29.1 million compared with $135.5 million in fourth-quarter 2018 and $72.8 million in the year-ago quarter.
Guidance for Q2
MKS Instruments anticipates to report revenues between $460 million and $510 million. Non-GAAP earnings are expected to range between 89 cents and $1.26 per share.
Moreover, the company targets to realize $15 million of annualized cost synergies from Electro Scientific Industries acquisition over the next 18-36 months.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended downward during the past month. The consensus estimate has shifted -19.12% due to these changes.
Currently, MKS Instruments has a poor Growth Score of F, however its Momentum Score is doing a bit better with a D. However, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. 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.