Keysight (KEYS) Beats on Q3 Earnings Despite Flat Revenues
Keysight Technologies, Inc. KEYS reported healthy third-quarter fiscal 2023 results, with the bottom line beating the Zacks Consensus Estimate and the top line matching the same.
Despite macroeconomic challenges, solid demand trends in several verticals such as aerospace, defense and government sector along with increased investment in O-RAN, 5G and 6G research and AI-ML data centers led to a relatively flat revenue trajectory.
Net Income
GAAP net income decreased to $288 million or $1.61 per share from $338 million or $1.87 per share in the year-ago quarter. The decline is primarily attributable to higher income tax provision.
Non-GAAP net income in the reported quarter was $393 million or $2.19 per share compared with $363 million or $2.01 per share in the year-earlier quarter. The bottom line comfortably beat the Zacks Consensus Estimate of $2.04.
Keysight Technologies Inc. Price, Consensus and EPS Surprise
Keysight Technologies Inc. price-consensus-eps-surprise-chart | Keysight Technologies Inc. Quote
Revenues
Revenues totaled $1,382 million, almost flat year over year. Solid performance in the Electronic Industrial Solutions segment was offset by a relatively soft performance within the Communications Solutions Group. The top line was in sync with the consensus estimate. However, orders declined 15% year over year to $1,244 million.
Revenues from Communication Solutions Group (CSG) were $918 million compared with $970 million in the prior-year quarter. A cautious but stable spending environment, particularly in smartphone and PC computing markets owing to inventory adjustments and macroeconomic challenges, dented net sales in this segment. However, strength in aerospace, defense and government induced by solid sales growth in radar system applications, spectrum operations, space, satellite, 5G and 6G research partially offset the declining trends. Increasing investments in non-terrestrial networks, O-RAN, early 6G and AI-ML data center networks were positive factors.
The Electronic Industrial Solutions Group (EISG) segment revenues rose to $464 million from $406 million in the prior-year quarter. The 14% year-over-year growth was largely propelled by healthy sales growth in Automotive, semiconductor and general electronics.
Region-wise, the company witnessed 1% year-over-year decline in the Americas to $555 million. The downside was caused by lower demand among some larger customers in the region. Revenues from Europe were $244 million, up 17% from the year-ago quarter, driven by strength in automotive with some crucial deal wins. Asia-Pacific revenues aggregated $583 million compared with $607 million in the prior-year quarter.
Other Details
During the quarter, the company’s non-GAAP gross profit totaled $910 million compared with $894 million in the year-ago quarter. Keysight’s non-GAAP gross margin was 65.9%, compared with the year-ago quarter’s level of 65%. The non-GAAP operating margin was 31.3%, up from 30.1% in the prior-year quarter.
CSG reported a non-GAAP operating margin of 30%, up 40 basis points year over year. EISG reported a non-GAAP operating margin of 33.9%, up 260 basis points year over year, owing to double-digit revenue growth in automotive, general electronics and semiconductor.
Cash Flow & Liquidity
In the third quarter of fiscal 2023, Keysight generated $241 million in cash from operating activities compared with $224 million a year ago, bringing the respective tallies for the first nine months of fiscal 2023 and fiscal 2022 to $1,030 million and $746 million. As of Jul 31, 2023, the company had $2,572 million in cash and cash equivalents with $1,794 million of long-term debt.
Outlook
For the fourth quarter of fiscal 2023, Keysight expects revenues in the range of $1.29-$1.31 billion. Non-GAAP earnings are estimated between $1.83 and $1.89 per share.
For fiscal 2023, Keysight expects non-GAAP earnings in the vicinity of 8.19 per share on revenues of $5.45 billion at the midpoint of its guidance.
Zacks Rank & Key Picks
Keysight carries Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
T-Mobile US, Inc. TMUS, carrying a Zacks Rank #2, delivered an earnings surprise of 8.8% in the last reported quarter. It has a VGM Score of B.
Headquartered in Bellevue, WA, T-Mobile is a national wireless service provider. The company offers services under the T-Mobile, Metro by T-Mobile and Sprint brands. T-Mobile, through its subsidiaries, provides wireless services for branded postpaid and prepaid, and wholesale customers.
Arista Networks, Inc. ANET, carrying a Zacks Rank #2, is likely to benefit from the strong momentum and diversification across its top verticals and product lines. The company has a software-driven, data-centric approach to help customers build their cloud architecture and enhance their cloud experience. Arista has a long-term earnings growth expectation of 18.7% and delivered an earnings surprise of 12.8%, on average, in the trailing four quarters.
It holds a leadership position in 100-gigabit Ethernet switching share in port for the high-speed datacenter segment. Arista is increasingly gaining market traction in 200- and 400-gig high-performance switching products and remains well-positioned for healthy growth in data-driven cloud networking business with proactive platforms and predictive operations.
Motorola Solutions, Inc. MSI is a Zacks Rank #2 stock. It has a long-term earnings growth expectation of 9% and delivered an earnings surprise of 5.6%, on average, in the trailing four quarters.
Based in Chicago, IL Motorola is a leading communications equipment manufacturer and has strong market positions in bar code scanning, wireless infrastructure gear and government communications. Motorola intends to fortify its position in the public safety domain by entering into alliances with other players in the ecosystem. It remains poised to benefit from organic growth and acquisition initiatives, disciplined capital deployment and a favorable global macroeconomic environment.
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