Mercury Systems (MRCY) Up 11.7% Since Last Earnings Report: Can It Continue?
It has been about a month since the last earnings report for Mercury Systems (MRCY). Shares have added about 11.7% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Mercury Systems due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Mercury Systems Q2 Earnings & Revenues Lag Estimates
Mercury Systems reported second-quarter fiscal 2024 results, wherein both the top and bottom lines missed the Zacks Consensus Estimate.
The aerospace and defense tech firm reported a non-GAAP loss of 42 cents per share, in contrast to the Zacks Consensus Estimate of earnings of 7 cents per share. The bottom line also compared unfavorably with the year-ago quarter’s earnings of 26 cents per share, mainly due to lower revenues, increased costs and higher manufacturing adjustments.
Mercury Systems’ second-quarter non-GAAP revenues decreased 14% to $197.5 million compared with $229.6 million reported in the year-ago quarter. The top line also missed the consensus mark of $215.4 million.
The dismal top-line performance was negatively impacted by the company’s planned business transition initiatives, under which it is focusing on shifting a high mix of development programs to production and converting a high level of working capital into significant cash flows.
Key Metrics
Mercury Systems’ total bookings were $325.4 million in the second quarter, resulting in a 1.65 book-to-bill ratio.
The company ended the quarter with a backlog of $1.28 billion, up $160.7 million on a year-over-year basis. Within the next 12 months, products worth $786.4 million from this order backlog are expected to be recognized.
Mercury Systems’ gross profit was $31.5 million, down 61% year over year. Moreover, its gross margin contracted to 16% from 35.3% in the year-ago quarter. The decline in gross profit and margin was primarily due to increased costs and higher manufacturing adjustments mainly related to inventory reserves and scrap.
Total operating expenses decreased 3.5% to $85.4 million. However, as a percentage of revenues, operating expenses increased 470 basis points to 43.3% from 38.6% in the year-ago quarter.
The company reported a negative adjusted EBITDA of $21.3 million. In the year-ago quarter, the company reported an adjusted EBITDA of $35.7 million.
Balance Sheet & Cash Flow
As of Dec 29, 2023, MRCY’s cash and cash equivalents were $168.6 million compared with $89.4 million as of Sep 29, 2023. The long-term debt as of Dec 29, 2023, was $616.5 million.
The company’s cash flow was $45.5 million from operational activities in the second quarter of fiscal 2024 compared with $35.4 million in the second quarter of fiscal 2023. Mercury generated a free cash flow of $37.5 million in the second quarter compared with $22.2 million in the year-ago quarter.
Guidance
For fiscal 2024, Mercury Systems has revised its guidance. It now expects revenues between $800 million and $850 million, down from the previously forecasted guidance of $950 million to 1 billion.
The reduction is because of MRCY's dismal performance in the first half of fiscal 2024, primarily due to the negative impact of business transition and increased program costs. The company expects lower volumes in the second half as it focuses on advancing challenged and late-stage development programs and reducing working capital, particularly related to unbilled receivables.
However, the company expects its full-year bookings to exceed $1 billion in 2024.
How Have Estimates Been Moving Since Then?
It turns out, estimates review have trended downward during the past month.
The consensus estimate has shifted -190.23% due to these changes.
VGM Scores
At this time, Mercury Systems has an average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. Following the exact same course, the stock was allocated a grade of F on the value side, putting it in the bottom 20% quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of F. 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. It's no surprise Mercury Systems has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.
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Mercury Systems Inc (MRCY) : Free Stock Analysis Report
