Keysight (KEYS) Q4 Earnings Beat Estimates, Revenues Up Y/Y

Keysight Technologies, Inc. (NYSE:KEYS) delivered fourth-quarter fiscal 2019 non-GAAP earnings of $1.33 per share, which surpassed the Zacks Consensus Estimate of $1.18. The bottom-line figure rose from $1.01 reported in the year-ago quarter and fell within management’s prior guidance of $1.14-$1.2 per share.

Non-GAAP revenues increased 7% year over year to $1.122 billion, exceeding management’s guided range of $1.08-$1.1 billion. Non-GAAP core revenues (excluding the impact of currency and revenues from acquisitions in a year’s time) increased 7% year over year.

Meanwhile, GAAP revenues advanced 7% from the year-ago quarter to $1.12 billion. The top line exceeded the Zacks Consensus Estimate of $1.10 billion.

Robust performance in the quarter was mainly supported by the company’s leading position across market such as 5G, aerospace defense, network visibility and general electronics. Further, the company is well-positioned to sustain growth momentum, courtesy of its differentiated and broad portfolio of solutions across several end-markets

Coming to price performance, shares of the company were up 2.6% in after-hours trading on Nov 26. Notably, Keysight’s stock has surged 78% in a year compared with the industry’s 23.4% growth.

Quarter in Detail

Orders grew 6% year over year to approximately $1,194 million during the reported quarter. Notably, core orders also improved 7%.

The company’s financial reporting comprises three segments — Ixia Solutions Group (ISG), Electronic Industrial Solutions Group (EISG) and Communications Solutions Group (CSG).

CSG includes commercial communications (CC) and aerospace, defense & government (ADG) end markets. Non-GAAP CSG revenues climbed 7% to $706 million.

CC revenues of $443 million improved 9% year over year on the back of strong growth in the wireless ecosystem primarily triggered by advancement in 5G investment.

ADG revenues came in at $263 million, increasing 5% year over year on a core basis. Higher government spending and investments in China supported the upside. These were partially offset by weakness in Europe and rest of Asia.

Non-GAAP EISG revenues increased 3% to $284 million, primarily owing to portfolio strength in general electronics, investments in next-generation automotive and energy technologies as well as semiconductor solution demand.

ISG reported non-GAAP revenues of $132 million, up 15% year over year, backed by double-digit revenue growth across network test and visibility solutions.

Management highlighted that ISG will be aligned with the CGS segment in first-quarter fiscal 2020.

Keysight Technologies Inc. Price, Consensus and EPS Surprise

Margin Highlights

Non-GAAP gross margin was 64% during the reported quarter. CSG and EISG’s gross margin of 63% and 72% expanded 280 bps and 370 bps, respectively, on a year-over-year basis. Further, ISG gross margin increased 140 bps to 71.7%.

Non-GAAP operating margin for the quarter was 26%, reflecting substantial growth from 21.1% in the year-ago quarter.

Balance Sheet & Cash Flow

Keysight ended the fourth quarter with cash & cash equivalents of $1.598 billion, up from the previous quarter’s $1.394 billion.

As on Oct 31, 2019, the company reported total debt (short-term plus long-term) of $1.788 billion, down from $1.792 billion in the previous quarter.

Cash flow from operations during the quarter came in at $263 million compared with the previous quarter’s $274 million.

Free cash flow was $233 million compared with the previous quarter’s $244 million.

During the reported quarter, the company repurchased approximately 300,000 shares for $30 million. In fiscal 2019, Keysight repurchased nearly 2.1 million shares for $160 million.

Guidance

For the first quarter of fiscal 2020, the company expects GAAP revenues to be $1.045-$1.065 billion. Revenues in first-quarter fiscal 2019 were $1.006 billion.

Non-GAAP earnings per share are projected to be $1.04-$1.1. This reflects considerable growth from earnings of 93 cents in first-quarter fiscal 2019.

Management highlighted that fiscal 2020 performance is likely to be adversely impacted by trade restriction affecting a major customer in China. This is likely to lead to a five-point and three-point headwind during the first and second quarter of fiscal 2020, respectively. These unfavorable impacts are likely to show upon the performance of commercial communications end-market.

Zacks Rank & Stocks to Consider

Keysight carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the broader technology sector are Fortinet, Inc. (NASDAQ:FTNT) , Cirrus Logic, Inc. (NASDAQ:CRUS) and Qorvo, Inc. (NASDAQ:QRVO) , each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings growth rate for Fortinet, Cirrus and Qorvo is currently pegged at 14%, 15% and 10.1%, respectively.

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