MKS Instruments (MKSI) Beats On Q2 Earnings, Stock Gains

Premium scientific & technical instruments company MKS Instruments, Inc. (NASDAQ:MKSI) reported robust second-quarter 2016 earnings. The quarterly results were supported by benefits from the latest acquisition of Newport Corporation and favorable developments in the global semiconductor as well as other advanced markets.

The company’s quarterly adjusted earnings of 72 cents per share comfortably surpassed the Zacks Consensus Estimate of 47 cents. The bottom line also soared 89.5% year over year.

Revenues

Net revenues came in at $325.9 million, up 49.5% year over year. In addition, the top line surpassed the Zacks Consensus Estimate of $293 million.

In the reported quarter, revenues from the sale of Products came in at $285.5 million, while sales from Services amounted to $40.4 million. Products revenues represent 87.6% of the total revenue, while sales from Services account for the remainder.

Margins/Costs

MKS Instruments’ adjusted gross profit margin for the quarter increased 240 basis points (bps) year over year to 44.8%. Selling, general and administrative expenses totaled $71.4 million as against $33.3 million in the year-ago comparable period. Research and development expenditure rose 60.6% year over year to $28.2 million. Adjusted operating margin was 18.1% compared with 14.6% a year ago.

Balance Sheet

MKS Instruments’ cash and cash equivalents at the end of the quarter were $354.3 million compared with $227.6 million at year-end 2015. At the end of the quarter, the company had total assets worth $2,243.4 million as against $1,273.3 million as of Dec 31, 2015. Long-term debt for the second quarter was $696.9 million.

The company’s board of directors approved the payment of a quarterly cash dividend of 17 cents per share. The dividend will be paid on Sep 9, 2016 to shareholders on record as of Aug 29.

As of Jul 27, 2016, MKS Instruments closed the trading session at $48.00 per share. Shares of the company rallied 8.33% in afterhours trading on Jul 27, after the strong second-quarter result announcement.

Outlook

MKS Instruments expects favorable business environment at its end markets to drive growth going forward. The company expects the strategic integration of Newport Corporation to help it launch innovative technologies and generate $35 million worth cost synergies for 2016. The company forecasts revenues in the range of $345–$385 million and adjusted earnings per share in 64–86 cents per share range for third-quarter 2016.

Based on its recently implemented combined targeted operating model, MKS Instruments estimates roughly $1.4 billion revenues in 2016. Annual adjusted earnings are anticipated in the range of $2.97–$2.35 per share. The full-year adjusted operating and gross margins are estimated in the range of 18–20% and 45–47%, respectively.

Other Stocks to Consider

MKS Instruments currently holds a Zacks Rank #2 (Buy). Other well-ranked stocks in the industry include Entegris, Inc. (NASDAQ:ENTG) , Nikon Corporation (OTC:NINOY) and Ultratech, Inc. (NASDAQ:UTEK) . All the three companies sport a Zacks Rank #1 (Strong Buy).

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