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Manufacturing equipment and systems provider Advanced Energy (NASDAQGS:AEIS) beat analysts' expectations in Q2 CY2024, with revenue down 12.2% year on year to $364.9 million. On the other hand, the company expects next quarter's revenue to be around $370 million, slightly below analysts' estimates. It made a non-GAAP profit of $0.85 per share, improving from its profit of $0.72 per share in the same quarter last year.
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Advanced Energy (AEIS) Q2 CY2024 Highlights:
- Revenue: $364.9 million vs analyst estimates of $350.5 million (4.1% beat)
- EPS (non-GAAP): $0.85 vs analyst estimates of $0.71 (19.2% beat)
- Revenue Guidance for Q3 CY2024 is $370 million at the midpoint, below analyst estimates of $372.9 million
- EPS (non-GAAP) Guidance for Q3 CY2024 is $0.90 at the midpoint, roughly in line with what analysts were expecting
- Gross Margin (GAAP): 35%, down from 35.4% in the same quarter last year
- Free Cash Flow was -$8.06 million compared to -$9.35 million in the previous quarter
- Market Capitalization: $4.12 billion
Pioneering technologies for radio frequency power delivery, Advanced Energy (NASDAQGS:AEIS) provides power supplies, thermal management systems, and measurement and control instruments for various manufacturing processes.
Electronic ComponentsLike many equipment and component manufacturers, electronic components companies are buoyed by secular trends such as connectivity and industrial automation. More specific pockets of strong demand include data centers and telecommunications, which can benefit companies whose optical and transceiver offerings fit those markets. But like the broader industrials sector, these companies are also at the whim of economic cycles. Consumer spending, for example, can greatly impact these companies’ volumes.
Sales GrowthA company's long-term performance is an indicator of its overall business quality. While any business can experience short-term success, top-performing ones enjoy sustained growth for multiple years. Luckily, Advanced Energy's sales grew at an incredible 20.1% compounded annual growth rate over the last five years. This shows it expanded quickly, a useful starting point for our analysis.
We at StockStory place the most emphasis on long-term growth, but within industrials, a half-decade historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. Advanced Energy's recent history marks a sharp pivot from its five-year trend as its revenue has shown annualized declines of 2.4% over the last two years.
We can better understand the company's revenue dynamics by analyzing its most important segments, Semiconductor Equipment and Industrial and Medical Equipment, which are 51.6% and 21.7% of revenue. Over the last two years, Advanced Energy's Semiconductor Equipment revenue (i.e., plasma power) was flat while its Industrial and Medical Equipment revenue (i.e., robotics) averaged 7% year-on-year growth.
This quarter, Advanced Energy's revenue fell 12.2% year on year to $364.9 million but beat Wall Street's estimates by 4.1%. The company is guiding for a 9.8% year-on-year revenue decline next quarter to $370 million, an improvement from the 20.6% year-on-year decrease it recorded in the same quarter last year. Looking ahead, Wall Street expects sales to grow 5% over the next 12 months, an acceleration from this quarter.
Operating MarginOperating margin is an important measure of profitability as it shows the portion of revenue left after accounting for all core expenses–everything from the cost of goods sold to advertising and wages. It's also useful for comparing profitability across companies with different levels of debt and tax rates because it excludes interest and taxes.
Advanced Energy has done a decent job managing its expenses over the last five years. The company has produced an average operating margin of 9.5%, higher than the broader industrials sector.
Analyzing the trend in its profitability, Advanced Energy's annual operating margin decreased by 4.1 percentage points over the last five years. Even though its margin is still high, shareholders will want to see Advanced Energy become more profitable in the future.
This quarter, Advanced Energy generated an operating profit margin of 3.6%, down 3.6 percentage points year on year. Since Advanced Energy's operating margin decreased more than its gross margin, we can assume the company was recently less efficient because expenses such as sales, marketing, R&D, and administrative overhead increased.
EPSAnalyzing long-term revenue trends tells us about a company's historical growth, but the long-term change in its earnings per share (EPS) points to the profitability of that growth–for example, a company could inflate its sales through excessive spending on advertising and promotions.
Advanced Energy's EPS grew at a weak 1.7% compounded annual growth rate over the last five years, lower than its 20.1% annualized revenue growth. This tells us the company became less profitable on a per-share basis as it expanded.
We can take a deeper look into Advanced Energy's earnings to better understand the drivers of its performance. As we mentioned earlier, Advanced Energy's operating margin declined by 4.1 percentage points over the last five years. This was the most relevant factor (aside from the revenue impact) behind its lower earnings; taxes and interest expenses can also affect EPS but don't tell us as much about a company's fundamentals.
Like with revenue, we also analyze EPS over a shorter period to see if we are missing a change in the business. For Advanced Energy, its two-year annual EPS declines of 12.9% show its recent history was to blame for its underperformance over the last five years. These results were bad no matter how you slice the data.
In Q2, Advanced Energy reported EPS at $0.85, up from $0.72 in the same quarter last year. This print easily cleared analysts' estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects Advanced Energy to grow its earnings. Analysts are projecting its EPS of $2.85 in the last year to climb by 52% to $4.33.
Key Takeaways from Advanced Energy's Q2 Results We were impressed by how significantly Advanced Energy blew past analysts' revenue expectations this quarter. We were also excited its EPS outperformed Wall Street's estimates. On the other hand, its revenue guidance for next quarter was underwhelming. Overall, we think this was still a really good quarter that should please shareholders. The stock remained flat at $108.38 immediately following the results.
