MKS Instruments Smashes Q3 Estimates Despite 40% Lower Earnings

Manufacturing technology expert MKS Instruments (NASDAQ: MKSI) reported third-quarter results after the closing bell on Wednesday. The maker of measuring devices, control systems, and process monitoring tools for a wide variety of advanced manufacturing equipment performed far above expectations. MKD Instruments crushed analyst expectations in the third quarter, sending share prices sharply higher.

Here's a quick look at MKS Instruments' solid results amid a difficult market environment.

MKS Instruments' third-quarter results by the numbers

Metric Q3 2019 Q3 2018 Change
Revenue $463 million $487 million (4.9%)
GAAP net income $47.4 million $93.3 million (49%)
Adjusted earnings per share (diluted) $1.12 $1.88 (40%)

Data source: MKS Instruments. GAAP = generally accepted accounting principles.

What's new with MKS Instruments?

  • The reported results, while lower than their year-ago counterparts, left the analyst consensus far behind. Wall Street analysts had been expecting adjusted earnings near $0.87 per share on revenues in the neighborhood of $443 million.
  • Sales in the semiconductor division fell 14% year over year, landing at $223 million. The advanced markets segment saw revenues rise 5% to $239 million. These year-over-year comparisons include the acquisition of Electro Scientific Industries. This deal closed in February and added $7 million to the semiconductor segment's third-quarter sales alongside $42 million of advanced market revenues.
  • Not counting the Electro Scientific buyout, organic revenues fell 15% year over year in the semiconductor market and dropped 13% lower in advanced markets.
  • On the bottom line, the top end of the guidance range stopped at $1.02 per share with a midpoint hovering near the analyst view. MKS Instruments' gross margins, operating expenses, and interest payments all fell near the midpoint of management's guidance in the second-quarter earnings call. This solid earnings surprise simply stemmed from fiscal discipline and top-line sales at the very top of the given guidance range.
Several automated probing tools reach out to examine a microchip in a robotic clean-room setup.

Image source: Getty Images.

Pearls of wisdom from the executive suite

The company is finding ways to make do despite bumpy and unpredictable market conditions.

"Although our Advanced Markets remain constrained due to global macro-economic and trade uncertainty, we remain very excited about our product and market offerings into 2020 and beyond," said CEO Gerald Colella in a prepared statement.

In other words, MKS Instruments is feeling the pinch from Chinese-American trade tensions and tariffs. Three months ago, Colella explained his modest guidance targets with softening demand for consumer devices, tariffs, and the American import ban on products by major client Huawei. All of these headwinds are still in play.

Looking ahead

MKS Instruments set its fourth-quarter revenue guidance at roughly $470 million. At the midpoint of that projected sales level, adjusted earnings should land near $1.02 per share. Both projections are in line with current analyst expectations. The targets, which include significant contributions from the Electro Scientific buyout, can be compared to adjusted earnings of $1.54 per share on $461 million in revenues for the fourth quarter of 2018.

Investors had been expecting a far weaker performance from MKS Instruments. After a 14% jump in after-hours trading, the stock is trading at a reasonable 22 times trailing earnings. Share prices have more than doubled in three years and tripled in half a decade. Despite far from ideal market conditions, MKS Instruments is on a roll.

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Anders Bylund has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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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