MKS Instruments (MKSI) Q3 Earnings Beat, Revenues Miss

MKS Instruments MKSI reported third-quarter 2018 adjusted earnings of $1.88 per share, which comfortably beat the Zacks Consensus Estimate of $1.73 per share and increased 20.5% year over year.

Adjusted earnings exceeded the guided figure of $1.60-$1.86 per share, primarily driven by continued strength in advanced markets and efficient cost structure.

However, revenues of $487 million lagged the Zacks Consensus Estimate of $492 million. Revenues remained almost flat on a year-over-year basis.

Quarter Details

Products revenues (87.5% of total revenues) were $426 million, down 0.6% from the year-ago quarter. Services revenues (12.5%) increased 6.1% year over year to approximately $61 million.

Sales to semiconductor customers decreased 8% year over year to $259.

Sales to advanced markets (47% of total revenue) were $228 million, up 11% from the year-ago quarter. Revenues from advanced markets primarily grew due to Newport acquisition along with strong organic growth.

The company’s Vacuum and Analysis segment reported sales of $286 million, a decrease of 7% year over year, primarily attributed to slowdown in semiconductor capital equipment spending.

Sales from the Light and Motion Division were $201 million, up 13% from the prior-year period.

MKS Instruments, Inc. Price, Consensus and EPS Surprise

MKS Instruments, Inc. Price, Consensus and EPS Surprise | MKS Instruments, Inc. Quote

Operating Details

MKS Instruments’ gross profit margin for the quarter came in at 47.6%, expanding 70 basis points (bps) year over year.

Adjusted EBITDA increased 4.7% to $143 million. Adjusted EBITDA margin in the reported quarter was 29.3%, which expanded 130 bps on a year-over-year basis.

Both research & development and sales, general & administrative expenses as a percentage of revenues declined 10 bps year over year, to 6.5% and 14.5%, respectively.

Acquisition and Integration cost declined 50 bps while restructuring cost expanded 30 bps on a year-over-year basis.

The company reported non-GAAP operating income of $129 million in the quarter, up 4.1% from the year-ago quarter. Adjusted operating margin was 26.5%, which expanded 100 bps on a year-over-year basis due to exposure to growing advanced markets.

Balance Sheet & Cash Flow

MKS Instruments exited the quarter with cash and cash equivalents of $399.8 million compared with $427.4 million as of Jun 30, 2018.

Long-term debt was $342.9 million compared with $342.1 million as of Jun 30, 2018.

As of Sep 30, 2018, cash from operating activities was $95.9 million compared with $109.6 million in the previous quarter.

Guidance for Q4

MKS Instruments anticipates to report revenues in the range of $420-$460 million.

Non-GAAP earnings are expected in the range $1.38-$1.64 per share.

Non-GAAP operating expenses are expected in the range of $103-$109 million. R&D and SG&A expenses are expected in the range of $34-$36 million and $69-$73 million, respectively.

Zacks Rank & Stocks to Consider

Currently, MKS Instruments carries a Zacks Rank #4 (Sell).

Some better-ranked stocks in the broader technology sector include Vishay Intertechnology VSH, Nikon Corp. NINOY and Cadence Design Systems CDNS. All the three stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings growth rate for Vishay Intertechnology, Nikon and Cadence is projected to be 9.2%, 22% and 12%, respectively.

Vishay Intertechnology is going to report third-quarter fiscal 2018 earnings on Oct 30 and Nikon is expected to report second-quarter fiscal 2019 on Nov 11.

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