Keysight (KEYS) Q1 Earnings Beat Estimates Despite Lower Revenues
Keysight Technologies, Inc. KEYS reported relatively healthy first-quarter fiscal 2024 results, with the bottom and the top line beating the respective Zacks Consensus Estimate. However, the company reported a top-line decline year over year, owing to constrained spending behavior and inventory adjustments in the commercial communication business and revenue decline in aerospace and defense end markets.
Growing investment in AI-driven network and data center applications and healthy traction in automotive, digital health, software and services partially supported the top line. The company completed the acquisition of ESI group during the quarter. The buyout significantly expanded its design engineering, simulation and virtual prototyping software portfolio.
Net Income
Net income on a GAAP basis was $172 million or 98 cents per share, down from $260 million or $1.45 per share in the year-ago quarter. The decline is primarily attributed to top-line contraction year over year.
Non-GAAP net income in the reported quarter was $286 million or $1.63 per share compared with $363 million or $2.02 per share in the prior-year quarter. The bottom line surpassed the Zacks Consensus Estimate by 4 cents.
Keysight Technologies Inc. Price, Consensus and EPS Surprise
Keysight Technologies Inc. price-consensus-eps-surprise-chart | Keysight Technologies Inc. Quote
Revenues
Quarterly net sales were $1.26 billion compared with $1.38 billion recorded in the year-ago quarter. Total orders declined 6% year over year to $1.22 billion. Weakness in multiple end markets hindered revenue growth. However, the top line beat the Zacks Consensus Estimate by $13 million.
Communication Solutions Group (CSG) generated $839 million in revenues, down 11% year over year. Despite growth in total orders, revenues declined in aerospace, defense and government end markets. Demand for electromagnetic spectrum operations, space/satellite and radar solutions remain strong.
In commercial communication, end-market customer spending remained cautious and inventory adjustments impacted the net sales. In the wireline business, the company witnessed order growth for its data center solutions. Demand in O-RAN, 5G RedCap and non-terrestrial networks business remains steady. The top line beat our revenue estimate of $814.1 million.
The Electronic Industrial Solutions Group (EISG) segment’s revenues dropped to $420 million from $442 million in the prior-year quarter. Soft demand trends in the consumer and industrial electronics market and project delays in the semiconductor sector affected the net sales from this vertical. However, robust demand for Keysight’s proprietary laser interferometer solutions partially reversed this trend.
Demand for EV solutions remained strong. The company witnessed multiple deal wins for digital health applications for various use cases like medical imaging, scanning and test automation. The top line fell short of our revenue estimate of $429.7 million.
Region-wise, Asia-Pacific revenues aggregated $490 million compared with $563 million in the prior-year quarter. Declining trends in all end markets led to a 13% year-over-year drop. The company reported an 8% year-over-year decline in the Americas to $514 million. Revenues from Europe were $255 million, down 1% from the year-ago quarter's levels.
Other Details
During the quarter, the company’s non-GAAP gross profit totaled $846 million compared with $901 million in the year-ago quarter, with gross margins of 67.2% and 65.2%, respectively. The non-GAAP operating margin was 28.2%, marginally down from 29.7% in the prior-year quarter.
CSG reported a non-GAAP operating margin of 27%, down 170 basis points (bps) year over year. EISG reported a non-GAAP operating margin of 30.6%, down 120 bps year over year.
Cash Flow & Liquidity
In the first quarter of fiscal 2024, Keysight generated $328 million in cash from operating activities compared with $366 million a year ago. As of Jan 31, 2024, the company had $1.75 billion in cash and cash equivalents with $1.2 billion of long-term debt.
Outlook
For the second quarter of fiscal 2024, Keysight expects revenues in the range of $1.190-$1.210 billion. Non-GAAP earnings are estimated between $1.34 and $1.40 per share.
Keysight currently carries a Zacks Rank #4 (Sell).
Stocks to Consider
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NVIDIA is the worldwide leader in visual computing technologies and the inventor of the graphic processing unit. Over the years, the company’s focus evolved from PC graphics to AI-based solutions that support high-performance computing, gaming and virtual reality platforms.
InterDigital, Inc. IDCC, carrying a Zacks Rank #2 at present, delivered a trailing four-quarter average earnings surprise of 170.50%. In the last reported quarter, it delivered an earnings surprise of 16.53%.
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Arista Networks, Inc. ANET, carrying a Zacks Rank #2 at present, is likely to benefit from 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 delivered an earnings surprise of 13.28%, on average, in the trailing four quarters.
The company holds a leadership position in 100-gigabit Ethernet switching share in port for the high-speed data center segment. It is increasingly gaining market traction in 200 and 400-gig high-performance switching products and remains well-positioned for healthy growth in the data-driven cloud networking business with proactive platforms and predictive operations.
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