Applied Materials Inc. (AMAT - Free Report) delivered fiscal third-quarter 2019 non-GAAP earnings of 74 cents per share, which beat the Zacks Consensus Estimate by 4 cents and improved 5.7% sequentially. However, the figure declined 28.8% year over year.
Net sales of $3.562 billion surpassed the Zacks Consensus Estimate of $3.526 billion and were within management’s guided range of $3.375-$3.675 billion. The figure improved marginally 0.6% from the previous quarter but decreased 14.4% from the year-ago quarter.
Year-over-year decline was owing to market uncertainties which in turn led to weak segmental performance. Moreover, softness in semiconductor and display markets on account of slowdown in memory and display customers’ spending was a major headwind.
Nevertheless, the company witnessed solid momentum across United States and Taiwan.
Coming to price performance, Applied Materials has returned 44% on a year-to-date basis, outperforming the industry’s rally of 41%.
Management remains optimistic about the price elasticity of NAND, which is expected to bolster the NAND customer spending in the near term. Further, demand for foundry logic is improving thanks to rising need for specialty nodes in automotive, power, IoT, communications and image sensor markets.
However, management continues to expect overall wafer fab equipment spending in 2019 to be down in the range of mid to high-teens.
Further, the company’s expanding etch footprint bodes well for its semiconductor portfolio. Moreover, its strengthening momentum in conductor etch is aiding it in gaining traction in DRAM and NAND. Additionally, the company remains confident on its focus on research and development activities to develop new products.
Segments in Detail
The Semiconductor Systems Group (SSG) generated $2.27 billion sales in the reported quarter (64% to its net sales), reflecting a decrease 11.8% year over year.
Applied Global Services (AGS) reported sales of $931 million (26% of net sales), which decreased 2.2% from the prior-year quarter.
Sales from the Display segment came in $339 million (10% of net sales), down significantly 45% from the year-ago level.
Revenues by Geography
United States, Europe, Japan, Korea, Taiwan, Southeast Asia and China generated sales of $552 million, $162 million, $556 million, $445 million, $596 million, $134 million and $1.12 billion, contributing 15%, 5%, 16%, 12%, 17%, 4% and 31% of the net sales, respectively.
We note that sales in United States and Taiwan were up 58.6% and 17.8% year over year, respectively. However, Applied Materials witnessed a decline of 27.7%, 20.6%, 22.2%, 18.8% and 32.2% in sales in Europe, Japan, Korea, Southeast Asia and China, respectively.
Non-GAAP gross margin was 44%, contracting 190 bps from the year-ago quarter.
Applied Materials’ adjusted operating expenses as a percentage of net sales expanded 250 bps on a year-over-year basis to 20.9%.
Further, non-GAAP operating margin of 23% in the reported quarter contracted significantly by 440 bps from the prior-year quarter.
Balance Sheet & Cash Flow
As of Jul 28, 2019, cash and cash equivalent balance was $3.01 billion compared with $3.12 billion as of Apr 28, 2019. Inventories were $3.54 billion compared with $3.68 billion in the prior quarter. Accounts receivables improved to $2.37 billion from $2.26 billion in the fiscal second quarter.
The company returned $528 million and $196 million through stock repurchases and cash dividends, respectively.
Notably, Applied Materials generated $787 million, down from $800 million in the previous quarter.
For fourth-quarter fiscal 2019, Applied Materials expects net sales between $3.535 billion and $3.835 billion. The Zacks Consensus Estimate for the same is pegged at $3.68 billion.
Non-GAAP EPS is expected in the range of 72-80 cents. The corresponding Zacks Consensus Estimate is pegged at 76 cents per share.
Zacks Rank & Stocks to Consider
Applied Materials currently carries a Zacks Rank #3 (Hold).
A few better-ranked stocks in the broader technology sector are Anixter International (AXE - Free Report) , LogMeIn (LOGM - Free Report) and Perficient (PRFT - Free Report) , each flaunting 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 Anixter, LogMeIn and Perficient is currently projected to be 8%, 5% and 10.8%, respectively.
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