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Why Is KLA (KLAC) Up 13.6% Since Last Earnings Report?
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It has been about a month since the last earnings report for KLA (KLAC - Free Report) . Shares have added about 13.6% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is KLA due for a pullback? 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.
KLA Corp. Beats Q3 Earnings and Revenue Estimates
KLA Corporation reported third-quarter fiscal 2020 earnings per share of $2.47, beating the Zacks Consensus Estimate of $2.35. The figure was up 37.2% year over year but down 7.1% sequentially.
Revenues increased 29.8% from the year-ago quarter but decreased 5.6% sequentially to $1.42 billion, surpassing the Zacks Consensus Estimate by 0.6%. The figure was at the midpoint of the company’s guided range of $1.325-$1.525 billion.
During the quarter, the company witnessed record shipments driven by strong demand in Semiconductor Process Control systems.
It also saw increased Semiconductor device demand for enterprise and cloud applications due work from home surge and a strengthening gaming market, partially offset by a decline in some consumer-facing end markets.
Management continues to expect overall process control intensity to grow in 2020, driven by expanding value of inspection and measurement in addressing critical customer problems.
Demand for advanced logic nodes is expected to remain healthy through 2020 and in 2021, driven by investment in EUV, competitive dynamics, as well as capacity additions.
Foundry and logic is expected to continue performing well in 2020. The optimistic outlook is driven by next-generation technology development, capacity additions at leading-edge nodes, increasing competitive dynamics and investment in EUV infrastructure.
Top-Line Details
Products revenues (accounting for almost 74% of total revenues) increased 32.5% year over year to $1.05 billion.
Services revenues (26% of total revenues) increased 22.6% from the year-ago quarter to $372.9 million.
In terms of reportable segments, Semiconductor Process Control revenues increased 28.8% year over year to $1.18 billion, driven by continued strength in foundry and logic.
Specialty Semiconductor Process revenues were $85.1 million, up 0.8% year over year, driven by strength in RF, MEMS and advance packaging.
The segment is expected to further benefit from expanding RF demand to support 5G infrastructure investment, particularly in China.
PCB, Display and component inspection revenues increased exponentially from a year ago to $160.4 million. Other revenues were $0.469 million.
KLA Corp. continues to experience strong growth for Wafer Inspection solutions. Management stated that new capacity addition by Wafer manufacturers and the adoption of more complex architectures by IC customers are driving demand for bare wafer products. These are needed to support more stringent wafer flatness and process tool cleanliness specifications in advanced technologies.
Operating Details
Non-GAAP gross margin was 61.2% versus 60.8% in the prior quarter. The gross margin was at the upper end of the guided range of 59.5-61.5%. The increase was driven by a favorable product mix.
Total operating expenses increased 9.3% year over year to $401.2 million. As a percentage of sales, research and development as well as selling, general and administrative costs slightly decreased from the prior-year quarter.
Non-GAAP operating margin was 34.6% versus 34% in the prior quarter.
Balance Sheet
KLA Corp. ended the quarter with cash, cash equivalents and a marketable securities balance of $1.63 billion compared with $1.68 billion in the fiscal second quarter.
Cash from operations was $442 million in the fiscal third quarter versus $387.7 million in the prior quarter.
Fiscal Fourth-Quarter 2020 Guidance
For fourth-quarter fiscal 2020, revenues are expected between $1.26 billion and $1.54 billion.
Memory is expected to be 39% of system revenues in the fiscal fourth quarter. Foundry is expected to constitute 51% of total shipments and Logic is anticipated to account for 10% of semi-process control system revenues.
The company expects gross margin in the range of 59-61% and non-GAAP EPS within $1.81-$2.87.
GAAP EPS is projected within $1.58-$2.64.
How Have Estimates Been Moving Since Then?
It turns out, estimates revision flatlined during the past month.
VGM Scores
At this time, KLA has a strong Growth Score of A, a grade with the same score on the momentum front. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
KLA has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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Why Is KLA (KLAC) Up 13.6% Since Last Earnings Report?
It has been about a month since the last earnings report for KLA (KLAC - Free Report) . Shares have added about 13.6% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is KLA due for a pullback? 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.
KLA Corp. Beats Q3 Earnings and Revenue Estimates
KLA Corporation reported third-quarter fiscal 2020 earnings per share of $2.47, beating the Zacks Consensus Estimate of $2.35. The figure was up 37.2% year over year but down 7.1% sequentially.
Revenues increased 29.8% from the year-ago quarter but decreased 5.6% sequentially to $1.42 billion, surpassing the Zacks Consensus Estimate by 0.6%. The figure was at the midpoint of the company’s guided range of $1.325-$1.525 billion.
During the quarter, the company witnessed record shipments driven by strong demand in Semiconductor Process Control systems.
It also saw increased Semiconductor device demand for enterprise and cloud applications due work from home surge and a strengthening gaming market, partially offset by a decline in some consumer-facing end markets.
Management continues to expect overall process control intensity to grow in 2020, driven by expanding value of inspection and measurement in addressing critical customer problems.
Demand for advanced logic nodes is expected to remain healthy through 2020 and in 2021, driven by investment in EUV, competitive dynamics, as well as capacity additions.
Foundry and logic is expected to continue performing well in 2020. The optimistic outlook is driven by next-generation technology development, capacity additions at leading-edge nodes, increasing competitive dynamics and investment in EUV infrastructure.
Top-Line Details
Products revenues (accounting for almost 74% of total revenues) increased 32.5% year over year to $1.05 billion.
Services revenues (26% of total revenues) increased 22.6% from the year-ago quarter to $372.9 million.
In terms of reportable segments, Semiconductor Process Control revenues increased 28.8% year over year to $1.18 billion, driven by continued strength in foundry and logic.
Specialty Semiconductor Process revenues were $85.1 million, up 0.8% year over year, driven by strength in RF, MEMS and advance packaging.
The segment is expected to further benefit from expanding RF demand to support 5G infrastructure investment, particularly in China.
PCB, Display and component inspection revenues increased exponentially from a year ago to $160.4 million. Other revenues were $0.469 million.
KLA Corp. continues to experience strong growth for Wafer Inspection solutions. Management stated that new capacity addition by Wafer manufacturers and the adoption of more complex architectures by IC customers are driving demand for bare wafer products. These are needed to support more stringent wafer flatness and process tool cleanliness specifications in advanced technologies.
Operating Details
Non-GAAP gross margin was 61.2% versus 60.8% in the prior quarter. The gross margin was at the upper end of the guided range of 59.5-61.5%. The increase was driven by a favorable product mix.
Total operating expenses increased 9.3% year over year to $401.2 million. As a percentage of sales, research and development as well as selling, general and administrative costs slightly decreased from the prior-year quarter.
Non-GAAP operating margin was 34.6% versus 34% in the prior quarter.
Balance Sheet
KLA Corp. ended the quarter with cash, cash equivalents and a marketable securities balance of $1.63 billion compared with $1.68 billion in the fiscal second quarter.
Cash from operations was $442 million in the fiscal third quarter versus $387.7 million in the prior quarter.
Fiscal Fourth-Quarter 2020 Guidance
For fourth-quarter fiscal 2020, revenues are expected between $1.26 billion and $1.54 billion.
Memory is expected to be 39% of system revenues in the fiscal fourth quarter. Foundry is expected to constitute 51% of total shipments and Logic is anticipated to account for 10% of semi-process control system revenues.
The company expects gross margin in the range of 59-61% and non-GAAP EPS within $1.81-$2.87.
GAAP EPS is projected within $1.58-$2.64.
How Have Estimates Been Moving Since Then?
It turns out, estimates revision flatlined during the past month.
VGM Scores
At this time, KLA has a strong Growth Score of A, a grade with the same score on the momentum front. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
KLA has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.