Applied Materials (AMAT) Q3 Earnings Beat Estimate

Applied Materials Inc.’s (NASDAQ:AMAT) reported mixed third quarter fiscal 2016 results, wherein the bottom line came ahead of the Zacks Consensus Estimate but the top line fell short of the same.

The company’s pro-forma earnings per share (EPS) of 50 cents in the third quarter beat the Zacks Consensus Estimate of 47 cents and came in at the higher end of the guided range.

Quarter Detail

The company reported revenues of $2.82 billion, up 15.1% sequentially and 13.3% year over year primarily driven by strong demand in Southeast Asia, Korea, Japan and China and partially offset by soft demand in Taiwan, Europe and the U.S. However, revenue fell short of the Zacks Consensus Estimate of $2.831 billion.

Total orders of $3.66 billion were up 26% year over year. Backlog for the quarter increased 60% year-over-year to $4.95 billion.

Applied Materials generated non-GAAP gross margin of 43.7%, up 100 basis points (bps) from the previous quarter’s margin of 42.7% but down 20 bps from 43.9% reported in the year-ago quarter.

The company reported adjusted operating margin of 22.8% which marked an increase of 360 bps sequentially and 200 bps year over year.

On a pro-forma basis, Applied Materials reported net income of $550 million, or 50 cents per share compared with $376 million or 34 cents in the prior quarter. In the year-ago quarter, Applied Materials had reported a net income of $410 million or 33 cents per share.

Our pro-forma calculation excludes restructuring, acquisition-related, impairment and other charges as well as tax adjustments in the reported quarter.

On a fully diluted GAAP basis, the company recorded a net profit of $505 million (46 cents per share) compared with $320 million (29 cents per share) in the previous quarter and $329 million (27 cents per share) a year ago.

Balance Sheet

Inventories increased to $2.03 billion from $1.92 billion in the second quarter. Accounts receivables decreased to $1.85 billion from $1.91 billion in the prior quarter.

Cash and short-term investments balance was $3.27 billion at the end of fiscal second quarter compared with $2.64 billion in the prior quarter. Goodwill was 24.1% of total assets.

During the quarter, the company generated $981 million in cash from operations. The company spent $50 million on capex and paid dividends worth $108 million. It used $196 million towards share repurchases.

Guidance

Applied Materials also provided guidance for the fourth quarter of fiscal 2016. Revenues are expected to increase 15–19 percentage points sequentially. Non-GAAP EPS is expected to come in a range of 61 cents to 69 cents.

Applied Materials currently has a Zacks Rank #3 (Hold).

Better-ranked stocks include in the broader technology sector Charter Communications, Inc. (NASDAQ:CHTR) , Netgear Inc. (NASDAQ:NTGR) and Radcom Ltd. (NASDAQ:RDCM) , each sporting a Zacks Rank #1 (Strong Buy).