A month has gone by since the last earnings report for MKS Instruments (MKSI). Shares have lost about 6.3% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is MKS Instruments 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.
MKS Instruments Q2 Earnings Top Estimates, Revenues Up
MKS Instruments reported second-quarter 2020 adjusted earnings of $1.62 per share, which beat the Zacks Consensus Estimate by 39.7% and also jumped 48.6% year over year.
Revenues of $544.3 million surpassed the consensus mark by 11.4% and also improved 14.8% year over year, driven by buoyant demand for the company’s solutions in the semiconductor market.
Products revenues (86.9% of total revenues) were $473 million, up 17.9% from the year-ago quarter. Services revenues (13.1%) declined 2.1% year over year to $71.3 million.
Revenues from the semiconductor market (59.1% of total revenues) jumped 50.2% year over year to $321.5 million owing to increased demand, particularly for Power Solutions business.
Revenues from advanced markets (40.9% of total revenues) were $222.8 million, down 14.3% from the year-ago quarter. The top line was negatively impacted by lower revenues from certain industrial applications, partially offset by strong growth in PCB drilling applications.
Segment-wise, Vacuum and Analysis (57.8% of total revenues) revenues surged 33.5% year over year to $314.5 million.
Equipment & Solutions segment revenues (11.7% of total revenues) were $63.8 million, up 14.2% year over year.
However, Light and Motion division revenues (30.5% of total revenues) decreased 9.1% year over year to $166 million.
In the second quarter, MKS Instruments’ adjusted gross margin expanded 30 basis points (bps) on a year-over-year basis to 45.3%.
Adjusted EBITDA increased 28.8% year over year to $133.2 million. Adjusted EBITDA margin expanded 270 bps on a year-over-year basis to 24.5%.
Research & development and sales, general & administrative expenses, as a percentage of revenues, declined 100 bps and 170 bps on a year-to-date basis, respectively.
MKS Instruments reported non-GAAP operating income of $117.7 million, up 33.1% year over year. Adjusted operating margin expanded 300 bps on a year-over-year basis to 21.6%.
As of Jun 30, 2020, MKS Instruments had cash and short-term investments of $607 million compared with $503 million as of Mar 31, 2020.
Secured term-loan principal outstanding as of Jun 30, 2020 was $838 million. The company also had $100 million of incremental borrowing capacity under an asset-based line of credit, subject to certain borrowing base requirements.
Cash flow from operations surged 79.4% year over year to $139 million. Free cash flow jumped 85.1% year over year to $118.1 million.
MKS Instruments paid out dividends worth $11 million during the reported quarter.
For the third quarter of 2020, MKS Instruments anticipates revenues between $535 million and $585 million.
Non-GAAP earnings are expected between $1.55 per share and $1.95 per share.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates. The consensus estimate has shifted 46.67% due to these changes.
At this time, MKS Instruments has a nice Growth Score of B, however its Momentum Score is doing a bit better with an A. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise MKS Instruments has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.
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