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Why Is MKS Instruments (MKSI) Down 1.7% Since Last Earnings Report?

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It has been about a month since the last earnings report for MKS Instruments (MKSI - Free Report) . Shares have lost about 1.7% 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 the most recent earnings report in order to get a better handle on the important catalysts.

MKS Instruments' Q1 Earnings Top, Revenues Rise Y/Y

MKS Instruments reported first-quarter 2020 adjusted earnings of $1.54 per share, which beat the Zacks Consensus Estimate by 24.2% and also increased 28.3% year over year.

Revenues of $535.7 million surpassed the consensus mark by 4.8% and also improved 15.6% year over year, driven by buoyant demand for the semiconductor market.

Products revenues (86.1% of total revenues) were $461.2 million, up 8.1% from the year-ago quarter. Services revenues (13.9%) inched up 1.8% year over year to $74.5 million.

Quarterly Update

Revenues from the semiconductor market (58.4% of total revenues) jumped 41.9% year over year to $312.6 million owing to increased demand.

Revenues from advanced markets (41.6% of total revenues) were $223.1 million, down 8.3% from the year-ago quarter. The top line was negatively impacted by university and research lab closures due to the coronavirus (COVID-19).
 
Segmentwise, Vacuum and Analysis (59.6% of total revenues) revenues surged 36.2% year over year to $319.3 million.

Equipment & Solutions segment revenues (9.5% of total revenues) were $51 million, up 44.9% year over year.

Light and Motion division revenues (30.9% of total revenues), however, decreased 14.7% year over year to $165.4 million.

Operating Details

In the first quarter, MKS Instruments’ adjusted gross margin contracted 190 basis points (bps) on a year-over-year basis to 44.7%.

Adjusted EBITDA increased 20.2% year over year to $129.7 million. Adjusted EBITDA margin expanded 90 bps on a year-over-year basis to 24.2%.

Research & development and sales, general & administrative expenses, as a percentage of revenues, declined 110 bps and 150 bps on a year-to-date basis, respectively.

MKS Instruments reported non-GAAP operating income of $110 million, up 19.4% year over year. Adjusted operating margin expanded 70 bps on a year-over-year basis to 20.5%.

Balance Sheet & Cash Flow

As of Mar 31, 2020, MKS Instruments had cash and short-term investments of $503 million compared with $524 million as of Dec 31, 2019.

Secured term-loan principal outstanding as of Mar 31, 2020 was $840 million. The company also had $100 million of incremental borrowing capacity under an asset-based line of credit, subject to certain borrowing base requirements.

MKS Instruments paid out dividends worth $11 million during the reported quarter.

Q2 Guidance

For the second quarter of 2020, MKS Instruments anticipates revenues between $450 million and $520 million. Management stated that order rates will remain strong in the second quarter. However, lockdowns around the world due to the coronavirus are expected to impact second-quarter revenues.

Non-GAAP earnings are expected between 90 cents and $1.38 per share.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates review. The consensus estimate has shifted -9.69% due to these changes.

VGM Scores

Currently, MKS Instruments has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, MKS Instruments has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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