Advanced Energy (AEIS) Down 2.6% Since Last Earnings Report: Can It Rebound?

It has been about a month since the last earnings report for Advanced Energy Industries (AEIS). Shares have lost about 2.6% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Advanced Energy due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Advanced Energy Q2 Earnings & Revenues Miss Estimates

Advanced Energy Industries, Inc. reported second-quarter 2018 adjusted earnings of $1.25 per share, missing the Zacks Consensus Estimate by 10 cents.

Also, revenues of $196 million missed the Zacks Consensus Estimate of $197 million but were within the company's guided range of $193-$207 million. Revenues were up 18.2% year over year but almost flat sequentially.

During the quarter, the company registered strong growth in Industrial and Service businesses. However, near-term delays in semiconductor memory spending by a large number of manufacturers impacted its second-quarter revenues.

Advanced Energy announced that it has agreed to acquire LumaSense Technologies, a leader in photonic-based measurement technologies for power-intensive applications. The deal will expand the company's share in both semiconductor as well as large industrial markets.

Revenues by Market

The revenue mix in terms of market is discussed below.

Semiconductor revenues decreased 6.4% sequentially but increased 8.8% year over year. The delays in memory expansion for 3D NAND and DRAM by one of the largest semiconductor manufacturers impacted the company's semiconductor business.

Management expects semi third-quarter revenues to remain weak due to pushouts in logic and memory.

Industrial revenues increased 59.7% year over year and 19.2% sequentially. The increase was driven by improvements in the global economy and multiple design wins, including a significant win from a large solar PV manufacturer.

Management expects Industrial products to continue to grow in the double-digit range in the near term.

Services revenues increased 9.8% sequentially and 18.6% year over year in the second quarter.

Operating Results

Non-gross margin from continuing operations was 51.8%, down 10 basis points (bps) from the year-ago quarter. The decrease was due to an unfavorable mix.

Non-GAAP operating expenses of $41.9 million increased 20.5% year over year. As a percentage of sales, research and development expenses increased, while selling, general and administrative expenses decreased.

As a result, pro-forma operating margin was 30.5%, down 130 bps year over year.

Balance Sheet & Cash Flow

During the reported quarter, cash flow from operations was $53 million. The company repurchased $25.3 million of stock in the quarter and $38.1 million year-to-date.

Total cash, cash equivalents and Marketable securities were $436.1 million in the second quarter versus $417.1 million in the last reported quarter.

Third-Quarter Guidance

For the third quarter, Advanced Energy expects revenues in the range of $160-$170 million. The Zacks Consensus Estimate is pegged at $193.03 million. GAAP operating margin is expected in the range of 25.2-27.2%, while non-GAAP operating margin is anticipated in the range of 27.5-29.5%.

GAAP EPS are expected within 86 cents to $1.00 per share, while non-GAAP EPS are anticipated in the band of 93 cents to $1.07. The Zacks Consensus Estimate is pegged at $1.32.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -20.68% due to these changes.

VGM Scores

At this time, Advanced Energy has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with a D. However, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Zacks style scores indicate that the company's stock is suitable for value and growth investors.


Estimates have been broadly trending downward for the stock and the magnitude of these revisions indicates a downward shift. Notably, Advanced Energy has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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