No Surprises In Entegris's (NASDAQ:ENTG) Q4 Sales Numbers But Quarterly Guidance Underwhelms

Petr Huřťák /
2023/02/14 6:05 am EST
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Semiconductor materials supplier Entegris (NASDAQ:ENTG) reported results in line with analyst expectations in Q4 FY2022 quarter, with revenue up 48.9% year on year to $946.1 million. However, guidance for the next quarter was less impressive, coming in at $895 million at the midpoint, being 2.64% below analyst estimates. Entegris made a GAAP profit of $57.4 million, down on its profit of $118.2 million, in the same quarter last year.

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Entegris (ENTG) Q4 FY2022 Highlights:

  • Revenue: $946.1 million vs analyst estimates of $949.1 million (small miss)
  • EPS (non-GAAP): $0.83 vs analyst estimates of $0.78 (6.64% beat)
  • Revenue guidance for Q1 2023 is $895 million at the midpoint, below analyst estimates of $919.3 million
  • Free cash flow was negative $115.3 million, down from positive free cash flow of $18.8 million in previous quarter
  • Inventory Days Outstanding: 137, up from 120 previous quarter
  • Gross Margin (GAAP): 42.8%, down from 46.5% same quarter last year

Bertrand Loy, Entegris’ president and chief executive officer, said: “Our solid fourth quarter results capped off a strong year for Entegris. Sales grew 13 percent in 2022, several points higher than estimated industry growth. This above-market growth was driven in large part by our strong position at the leading-edge technology nodes.”

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.

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

Sales Growth

Entegris's revenue growth over the last three years has been strong, averaging 27.5% annually. And as you can see below, last year has been especially strong, with quarterly revenue growing from $635.2 million to $946.1 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

Despite missing analyst estimates this quarter, Entegris's 48.9% revenue growth was still objectively impressive. This marks 13 straight quarters of revenue growth, which means the current upcycle has had a good run, as a typical upcycle tends to be 8-10 quarters.

However, Entegris believes the growth is set to continue, and is guiding for revenue to grow 37.8% YoY next quarter, and Wall St analysts are estimating growth 18.8% over the next twelve months.

In volatile times like these we look for robust businesses with strong pricing power. Unknown to most investors, this company is one of the highest-quality software companies in the world, and their software products have been the default standard in critical industries for decades. The result is an impressive business that is up an incredible 18,152% since the IPO. You can find it on our platform for free.

Product Demand & Outstanding Inventory

Days Inventory Outstanding (DIO) are an important metric for chipmakers, as it reflects the capital intensity of the business 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 inventory days came in at 137, 16 days above the five year average, suggesting that that inventory has grown to higher levels than what we used to see in the past.

Key Takeaways from Entegris's Q4 Results

Since it has still been burning cash over the last twelve months it is worth keeping an eye on Entegris’s balance sheet, but we note that with a market capitalization of $12.7 billion and more than $563.4 million in cash, the company has the capacity to continue to prioritise growth over profitability.

We were impressed by the exceptional revenue growth Entegris delivered this quarter. And we were also excited to see that earnings outperformed Wall St’s expectations. On the other hand, it was unfortunate to see that the revenue guidance for the next quarter missed analysts' expectations and inventory levels increased. Overall, this quarter's results were not the best we've seen from Entegris. The company is flat on the results and currently trades at $84.93 per share.

Entegris may have had a tough quarter, but does that actually create an opportunity to invest right now? It is important that you take into account its valuation and business qualities, as well as what happened in the latest quarter. We look at that in our actionable report which you can read here, it's free.

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The author has no position in any of the stocks mentioned.