A month has gone by since the last earnings report for Keysight (KEYS - Free Report) . Shares have lost about 4.8% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Keysight 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.
Keysight Q3 Earnings Beat Estimate Despite Lower Revenues
Keysight reported relatively strong third-quarter fiscal 2024 results, with the bottom and the top lines surpassing the respective Zacks Consensus Estimate. However, the company reported a top-line decline year over year. Weakness in multiple end markets, including general electronics, semiconductor and automotive, impeded the net sales growth. Strong demand for AI related network data center infrastructure solutions and healthy momentum in software and services partially cushioned the top line.
Net Income
Net income on a GAAP basis was $389 million or $2.22 per share, up from $288 million or $1.61 per share in the year-ago quarter. Despite top-line decline, income tax benefits led to higher net income.
Non-GAAP net income in the reported quarter was $275 million or $1.57 per share compared with $393 million or $2.19 per share in the prior-year quarter. The bottom line surpassed the Zacks Consensus Estimate by 22 cents.
Revenues
Quarterly net sales were $1.22 billion compared with $1.38 billion recorded in the year-ago quarter. Total orders declined 1% year over year to $1.24 billion. Weak demand in multiple end markets hindered revenue growth. However, the top line beat the Zacks Consensus Estimate by $24 million.
Communication Solutions Group (CSG) generated $847 million in revenues, down 8% year over year. Funding delays in new projects led to a decline in revenues from the Aerospace, Defense & Government end markets. However, steady investment in radar & spectrum operations, space and satellite and quantum solutions partially reversed this trend.
Demand environment remained mixed in the commercial communications vertical. However, the company witnessed strong growth in the wireline business. Solid investments in data center networks for 400 gig, 800 gig and terabit data rates, AI model training and network performance, drove net sales in the wireline business. Customer spending remained cautious in the wireless business. The top line beat our revenue estimate of $797.2 million.
The Electronic Industrial Solutions Group (EISG) segment’s revenues dropped to $370 million from $464 million in the prior-year quarter. Soft demand in the general electronics market affected net sales. In automotive, the company reported a decline in orders and revenues. Weakness in the EV market and lower auto manufacturing were headwinds.
Despite improvement in orders, revenues were down year over year in the semiconductor market, owing to high inventory levels. High demand for parametric wafer test solutions from foundry and memory customers partially reversed this trend. Demand for proprietary interferometry systems was strong. The top line fell short of our revenue estimate of $394.2 million.
Region-wise, Asia-Pacific revenues aggregated $496 million compared with $583 million in the prior-year quarter. The company reported an 11% year-over-year decline in the Americas to $500 million. Revenues from Europe were $221 million, down 15% from the year-ago quarter's levels.
Other Details
During the quarter, the company’s non-GAAP gross profit totaled $781 million compared with $910 million in the year-ago quarter, with gross margins of 64.1% and 65.9%, respectively. The non-GAAP operating margin was 26%, down from 31% in the prior-year quarter.
CSG reported a non-GAAP operating margin of 26.3%, down 370 basis points (bps) year over year. EISG reported a non-GAAP operating margin of 20.1%, down 1,380 bps year over year.
Cash Flow & Liquidity
In the nine months ended Jul 31, Keysight generated $693 million in cash from operating activities compared with $1.03 billion a year ago. As of Jul 31, 2024, the company had $1.63 billion in cash and cash equivalents, with $1.19 billion of long-term debt.
Outlook
For the fourth quarter of fiscal 2024, Keysight expects revenues in the range of $1.245-$1.265 billion. Non-GAAP earnings are estimated between $1.53 and $1.59 per share.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates revision.
VGM Scores
At this time, Keysight has a poor Growth Score of F, however its Momentum Score is doing a bit better with a D. Following the exact same course, the stock was allocated a grade of D on the value side, putting it in the bottom 40% 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 has been net zero. Notably, Keysight has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
A month has gone by since the last earnings report for Keysight (KEYS - Free Report) . Shares have lost about 4.8% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Keysight 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.
Keysight Q3 Earnings Beat Estimate Despite Lower Revenues
Keysight reported relatively strong third-quarter fiscal 2024 results, with the bottom and the top lines surpassing the respective Zacks Consensus Estimate. However, the company reported a top-line decline year over year. Weakness in multiple end markets, including general electronics, semiconductor and automotive, impeded the net sales growth. Strong demand for AI related network data center infrastructure solutions and healthy momentum in software and services partially cushioned the top line.
Net Income
Net income on a GAAP basis was $389 million or $2.22 per share, up from $288 million or $1.61 per share in the year-ago quarter. Despite top-line decline, income tax benefits led to higher net income.
Non-GAAP net income in the reported quarter was $275 million or $1.57 per share compared with $393 million or $2.19 per share in the prior-year quarter. The bottom line surpassed the Zacks Consensus Estimate by 22 cents.
Revenues
Quarterly net sales were $1.22 billion compared with $1.38 billion recorded in the year-ago quarter. Total orders declined 1% year over year to $1.24 billion. Weak demand in multiple end markets hindered revenue growth. However, the top line beat the Zacks Consensus Estimate by $24 million.
Communication Solutions Group (CSG) generated $847 million in revenues, down 8% year over year. Funding delays in new projects led to a decline in revenues from the Aerospace, Defense & Government end markets. However, steady investment in radar & spectrum operations, space and satellite and quantum solutions partially reversed this trend.
Demand environment remained mixed in the commercial communications vertical. However, the company witnessed strong growth in the wireline business. Solid investments in data center networks for 400 gig, 800 gig and terabit data rates, AI model training and network performance, drove net sales in the wireline business. Customer spending remained cautious in the wireless business. The top line beat our revenue estimate of $797.2 million.
The Electronic Industrial Solutions Group (EISG) segment’s revenues dropped to $370 million from $464 million in the prior-year quarter. Soft demand in the general electronics market affected net sales. In automotive, the company reported a decline in orders and revenues. Weakness in the EV market and lower auto manufacturing were headwinds.
Despite improvement in orders, revenues were down year over year in the semiconductor market, owing to high inventory levels. High demand for parametric wafer test solutions from foundry and memory customers partially reversed this trend. Demand for proprietary interferometry systems was strong. The top line fell short of our revenue estimate of $394.2 million.
Region-wise, Asia-Pacific revenues aggregated $496 million compared with $583 million in the prior-year quarter. The company reported an 11% year-over-year decline in the Americas to $500 million. Revenues from Europe were $221 million, down 15% from the year-ago quarter's levels.
Other Details
During the quarter, the company’s non-GAAP gross profit totaled $781 million compared with $910 million in the year-ago quarter, with gross margins of 64.1% and 65.9%, respectively. The non-GAAP operating margin was 26%, down from 31% in the prior-year quarter.
CSG reported a non-GAAP operating margin of 26.3%, down 370 basis points (bps) year over year. EISG reported a non-GAAP operating margin of 20.1%, down 1,380 bps year over year.
Cash Flow & Liquidity
In the nine months ended Jul 31, Keysight generated $693 million in cash from operating activities compared with $1.03 billion a year ago. As of Jul 31, 2024, the company had $1.63 billion in cash and cash equivalents, with $1.19 billion of long-term debt.
Outlook
For the fourth quarter of fiscal 2024, Keysight expects revenues in the range of $1.245-$1.265 billion. Non-GAAP earnings are estimated between $1.53 and $1.59 per share.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates revision.
VGM Scores
At this time, Keysight has a poor Growth Score of F, however its Momentum Score is doing a bit better with a D. Following the exact same course, the stock was allocated a grade of D on the value side, putting it in the bottom 40% 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 has been net zero. Notably, Keysight has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
Get the latest research report on KEYS - FREE