Entegris's (NASDAQ:ENTG) Q4 Sales Top Estimates But Quarterly Guidance Underwhelms

Max Juang /
2024/02/13 4:36 pm EST

Semiconductor materials supplier Entegris (NASDAQ:ENTG) reported Q4 FY2023 results exceeding Wall Street analysts' expectations, with revenue down 14.1% year on year to $812.3 million. On the other hand, next quarter's revenue guidance of $780 million was less impressive, coming in 2.7% below analysts' estimates. It made a non-GAAP profit of $0.65 per share, down from its profit of $0.83 per share in the same quarter last year.

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Entegris (ENTG) Q4 FY2023 Highlights:

  • Revenue: $812.3 million vs analyst estimates of $780.9 million (4% beat)
  • EPS (non-GAAP): $0.65 vs analyst estimates of $0.58 (11.8% beat)
  • Revenue Guidance for Q1 2024 is $780 million at the midpoint, below analyst estimates of $802 million
  • EPS (non-GAAP) Guidance for Q1 2024 is $0.63 million at the midpoint, below analyst estimates of $0.64
  • Free Cash Flow of $21.99 million, down 82% from the previous quarter
  • Inventory Days Outstanding: 118, up from 116 in the previous quarter
  • Gross Margin (GAAP): 42.4%, in line with the same quarter last year
  • Market Capitalization: $18.94 billion

Bertrand Loy, Entegris’ president and chief executive officer, said: “Our unit driven model has displayed strong resilience during the current industry downturn. We closed 2023 with fourth quarter sales and non-GAAP EPS results above our guidance. For the year, we outperformed the market by 6 points, driven in large part by our strong position at the leading-edge technology nodes. In addition, we divested three non-core businesses and used the proceeds and free cash flow to pay off $1.3 billion of debt. We also continued to make significant R&D and capacity investments, which are vital for our long-term growth.”

With fabs representing the company’s largest customer type, Entegris (NASDAQ:ENTG) supplies products that purify, protect, and generally ensure the integrity of raw materials needed for advanced semiconductor manufacturing.

Semiconductor Manufacturing

The semiconductor industry is driven by demand for advanced electronic products like smartphones, PCs, servers, and data storage. The need for technologies like artificial intelligence, 5G networks, and smart cars is also creating the next wave of growth for the industry. Keeping up with this dynamism requires new tools that can design, fabricate, and test chips at ever smaller sizes and more complex architectures, creating a dire need for semiconductor capital manufacturing equipment.

Sales Growth

Entegris's revenue growth over the last three years has been strong, averaging 25.9% annually. But as you can see below, its revenue declined from $946.1 million in the same quarter last year to $812.3 million. Semiconductors are a cyclical industry, and long-term investors should be prepared for periods of high growth followed by periods of revenue contractions (which can sometimes offer opportune times to buy).

Entegris Total Revenue

Even though Entegris surpassed analysts' revenue estimates, this was a slow quarter for the company as its revenue dropped 14.1% year on year. This could mean that the current downcycle is deepening.

Entegris's revenue growth has decelerated over the last three quarters and its management team projects revenue to fall next quarter. As such, the company is guiding for a 15.4% year-on-year revenue decline while analysts are expecting a 0.8% drop over the next 12 months.

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Product Demand & Outstanding Inventory

Days Inventory Outstanding (DIO) is an important metric for chipmakers, as it reflects a business' capital intensity and the cyclical nature of semiconductor supply and demand. In a tight supply environment, inventories tend to be stable, allowing chipmakers to exert pricing power. Steadily increasing DIO can be a warning sign that demand is weak, and if inventories continue to rise, the company may have to downsize production.

Entegris Inventory Days Outstanding

This quarter, Entegris's DIO came in at 118, which is 5 days below its five-year average. These numbers show that despite the recent increase, there's no indication of an excessive inventory buildup.

Key Takeaways from Entegris's Q4 Results

We liked that revenue and EPS both beat analysts' expectations this quarter. On the other hand, both its revenue and EPS guidance for next quarter missed analysts' expectations and its operating margin decreased. Zooming out, we think this was a mixed quarter. Given some of the poor earnings results from other semis companies this season, these results may be good enough and better-than-feared. The stock is up 2.3% after reporting and currently trades at $127 per share.

So should you invest in Entegris right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.