A month has gone by since the last earnings report for Advanced Energy Industries (AEIS). Shares have added about 6.1% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Advanced Energy due for a pullback? 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.
Advanced Energy Beats on 2Q Earnings, Misses on Revenues
Advanced Energy Industries delivered second-quarter 2019 non-GAAP earnings of 45 cents per share, beating the Zacks Consensus Estimate by 10 cents. Further, the figure came well above management’s guided range of 25-40 cents. However, the bottom line declined 64% on a year-over-year basis and 22.4% sequentially.
Revenues of $134.8 million missed the Zacks Consensus Estimate of $136 million but were within the company’s guided range of $130-$140 million.
However, the top line declined 31.2% on a year-over-year basis and 4.2% from the previous quarter. This can be primarily attributed to weak demand environment and macro-economic headwinds. Additionally, sluggishness in the semiconductor market and weak performance of the company’s industrial technologies impacted the top line.
The company expects macro-economic headwinds to persist and consequently provided weak guidance for third-quarter 2019.
Nevertheless, the company is witnessing strong adoption of its technologies and improvement in orders, which indicates that the market is stabilizing. Further, Advanced Energy remains confident on its robust cost optimization strategy, new product design wins and strong product pipelines. Further, pending acquisition of Embedded Power business of Artesyn Embedded Technologies is likely to provide sustainable growth to the company in the future.
Top-Line in Detail
Product revenues declined about 37.2% year over year to $106.2 million (78.8% of total revenues) in the second quarter. This was mainly owing to softness in semiconductor market.
Services revenues increased 6.8% from the prior-year quarter to $28.6 million (21.2% of revenues). This was driven by contributions from divestiture of the company’s U.S. solar inverter service business. However, lower fab utilization and memory fab conversion to logic affected the top line. Further, power outage at a leading Japanese NAND chip maker and capacity reductions were headwinds.
Equipment Segment in Detail
Semiconductor equipment revenues decreased 48.9% year over year to $65.1 million (48.3% of the total revenues). The company continued to face the consequences of declining memory prices, weakness in memory investments and slowdown in the demand from memory fabs. Further, lower revenues from Korea and China, which offset revenues from large customers, remain overhangs. However, Advanced Energy’s improving momentum in Korea remained encouraging and helped it to garner six new design wins during the reported quarter.
Industrial technology equipment revenues decreased 1.9% year over year to 41.1 million (30.5% of revenues). The decline was attributed to macro headwinds in the industrial sector and Europe. The company’s sales from advanced materials processing applications suffered from declining consumer electronics related investment in flat panel displays and hard coating. Nevertheless, the company witnessed design wins across many industrial and medical applications owing to its strong product portfolio.
In second quarter, non-GAAP gross profit was 47.7%, which contracted 410 bps in the year-ago quarter.
Non-GAAP operating expenses as a percentage of total revenues came in 47%, which expanded 510 bps year over year.
Further, non-GAAP operating margin was 12.8%, contracting from 30.5% in the prior-year quarter.
Balance Sheet & Cash Flow
As of Jun 30, 2019, cash, cash equivalents and Marketable securities were $359.8 million compared with $353.7 million Mar 31, 2019.
During the second quarter, cash flow from operations was $11.5 million compared with $6.9 million in the first quarter.
Capital expenditure during the reported quarter stood at $6.4 million.
For the third quarter of 2019, Advanced Energy expects revenues in the range of $123 million to $133 million. Non-GAAP earnings is anticipated in the band of 28-38 cents.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates revision. The consensus estimate has shifted -29.27% due to these changes.
At this time, Advanced Energy has a subpar Growth Score of D, a grade with the same score on the momentum front. Following the exact same course, the stock was allocated a grade of D on the value side, putting it in the bottom 40% 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 Advanced Energy has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.
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