Entegris (NASDAQ:ENTG) Reports Q3 In Line With Expectations But Quarterly Guidance Underwhelms
Semiconductor materials supplier Entegris (NASDAQ:ENTG) missed analysts' expectations in Q3 FY2023, with revenue down 10.6% year on year to $888.2 million. However, next quarter's revenue guidance of $780 million was less impressive, coming in 7.77% below analysts' estimates. Turning to EPS, Entegris made a GAAP profit of $0.22 per share, improving from its loss of $0.50 per share in the same quarter last year.
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Entegris (ENTG) Q3 FY2023 Highlights:
Revenue: $888.2 million vs analyst estimates of $891.9 million (small miss)
EPS (non-GAAP): $0.68 vs analyst estimates of $0.60 (12.4% beat)
Revenue Guidance for Q4 2023 is $780 million at the midpoint, below analyst estimates of $845.7 million
Free Cash Flow of $121.9 million, up from $11 million in the previous quarter
Inventory Days Outstanding: 116, down from 130 in the previous quarter
Gross Margin (GAAP): 41.3%, up from 37.4% in the same quarter last year
Bertrand Loy, Entegris’ president and chief executive officer, said: “The Entegris team delivered another quarter of solid results and execution, in what remains a challenging industry environment. Our revenue was down 1 percent sequentially, in line with expectations, and we continued to enjoy growth in product lines that are of increasing importance to our customers.”
With fabs representing the company’s largest customer type, Entegris (NASDAQ:ENTG) supplies products that purify, protect, and generally ensure the integrity of raw materials needed for advanced semiconductor manufacturing.
Semiconductor Manufacturing
The semiconductor industry is driven by demand for advanced electronic products like smartphones, PCs, servers, and data storage. The need for technologies like artificial intelligence, 5G networks, and smart cars is also creating the next wave of growth for the industry. Keeping up with this dynamism requires new tools that can design, fabricate, and test chips at ever smaller sizes and more complex architectures, creating a dire need for semiconductor capital manufacturing equipment.
Sales Growth
Entegris's revenue growth over the last three years has been strong, averaging 28.8% annually. But as you can see below, its revenue declined from $993.8 million in the same quarter last year to $888.2 million. Semiconductors are a cyclical industry, and long-term investors should be prepared for periods of high growth followed by periods of revenue contractions (which can sometimes offer opportune times to buy).
Entegris had a difficult quarter as revenue dropped 10.6% year on year, missing analysts' estimates by 0.41%.
Entegris's revenue inverted from positive to negative growth this quarter, which was unfortunate to see. Looking ahead to the next quarter, the company's management team forecasts a 17.6% year-on-year revenue decline. Analysts seem to agree that the poor performance will continue, as their estimates for the next 12 months call for a 5.04% drop in revenue.
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Product Demand & Outstanding Inventory
Days Inventory Outstanding (DIO) is an important metric for chipmakers, as it reflects a business' capital intensity and the cyclical nature of semiconductor supply and demand. In a tight supply environment, inventories tend to be stable, allowing chipmakers to exert pricing power. Steadily increasing DIO can be a warning sign that demand is weak, and if inventories continue to rise, the company may have to downsize production.
This quarter, Entegris's DIO came in at 116, which is 8 days below its five-year average. At the moment, these numbers show no indication of an excessive inventory buildup.
Key Takeaways from Entegris's Q3 Results
Sporting a market capitalization of $13.3 billion, more than $594 million in cash on hand, and positive free cash flow over the last 12 months, we believe that Entegris is attractively positioned to invest in growth.
We were impressed by Entegris's strong improvement in inventory levels. We were also glad its gross margin improved. On the other hand, its revenue guidance for next quarter underwhelmed and its operating margin shrunk. Zooming out, we think this was still a decent, albeit mixed, quarter, showing that the company is staying on track. Though, the weak revenue outlook is likely to provide investors with little reason to remain optimistic. The stock is flat after reporting and currently trades at $89 per share.
So should you invest in Entegris right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.
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The author has no position in any of the stocks mentioned in this report.
