Applied Materials (AMAT) Q1 Earnings & Sales Top Estimates

Applied Materials Inc. AMAT reported fiscal first-quarter 2020 non-GAAP earnings of 98 cents per share, which beat the Zacks Consensus Estimate by 6 cents. Moreover, the figure improved 22.5% sequentially and 21% year over year.

Net sales of $4.16 billion surpassed the Zacks Consensus Estimate of $4.12 billion. In addition, the figure improved 10.9% from the prior quarter and10.9% from the year-ago period.

The company witnessed solid momentum in key geographies, namely Taiwan and China. Additionally, strong global roll out of 5G mobile technology led to higher demand for semiconductor equipment, which drove fiscal first-quarter results.

Following strong fiscal first-quarter results, its shares were up 1.59% in after-hours trading. Encouragingly, the company provided strong guidance for second-quarter fiscal 2020.

Let’s delve deeper into the numbers.

Applied Materials, Inc. Price, Consensus and EPS Surprise

 

Applied Materials, Inc. Price, Consensus and EPS Surprise

Applied Materials, Inc. price-consensus-eps-surprise-chart | Applied Materials, Inc. Quote

Segments in Detail

The Semiconductor Systems Group generated $2.8 billion sales in the reported quarter (contributing 68% to its net sales), reflecting an increase of 24.1% year over year.

Applied Global Services reported sales of $997 million (24% of net sales), which increased 3.6% from the prior-year quarter.

Sales from the Display and Adjacent Markets came in at $332 million (8% of net sales), down 34.5% from the year-ago level.

Revenues by Geography

United States, Europe, Japan, Korea, Taiwan, Southeast Asia and China generated sales of $441 million, $153 million, $351 million, $508 million, $1.36 billion, $72 million and $1.27 billion, contributing 10%, 4%, 8%, 12%, 33%, 2% and 31% to net sales, respectively.

On a year-over-year basis, we note that sales in all the countries declined except Taiwan and China, which witnessed growth of 108.1% and 31.4%, respectively.

Operating Results

Non-GAAP gross margin was 44.9%, expanding30 basis points (bps) from the year-ago quarter.

Operating expenses were $816 million, 7.8% higher than the year-ago quarter. As a percentage of sales, research, development and engineering, and marketing and selling expenses decreased, while general and administrative costs increased.

Non-GAAP operating margin of 25.7% in the reported quarter expanded 110 bps from the prior-year period.

Balance Sheet & Cash Flow

At the end of the fiscal first quarter, cash and cash equivalent balance was $3.42 billion compared with $3.13 billion at the end of fiscal fourth quarter.

Inventories were $3.47 billion, flat with the prior quarter. Accounts receivables increased to $2.68 billion from $2.53 billion in the fiscal fourth quarter.

The company returned $200 million and $192 million through stock repurchases and cash dividends, respectively.

Notably, Applied Materials generated cash flow of $987 million, up from $826 million in the fiscal fourth quarter.

Guidance

For second-quarter fiscal 2020, Applied Materials expects net sales to be $4.34 (+/-$200 million). The Zacks Consensus Estimate for the same is pegged at $4.19 billion.

Non-GAAP EPS is expected in the range of 98 cents to $1.10. The corresponding Zacks Consensus Estimate is pegged at 96 cents per share.

Bottom Line

Management believes that demand for foundry logic is expected to remain strong in the near term, thanks to rising need for specialty nodes in automotive, power, 5G rollout, IoT, communications and image sensor markets.

Also, ongoing inventory correction in DRAM is a tailwind for the near term. The company expects more clients to upgrade their equipment ahead of the 5G rollout in key markets, which will help it expand top-line growth.

The company’s expanding etch footprint bodes well for the semiconductor portfolio. Moreover, its strengthening momentum in conductor etch is aiding it to gain traction in DRAM and NAND. Additionally, the company remains confident about its relentless focus on research and development activities to develop new products.

Zacks Rank & Other Key Picks

Applied Materials currently carries a Zacks Rank #2 (Buy). Other top-ranked stocks in the broader technology sector include Itron, Inc. ITRI, Splunk Inc. SPLK and Agilent Technologies A, each carrying a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings growth for Itron, Splunk, and Agilent is currently projected at 25%, 31.2% and 12.5%, respectively.

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