KLA Corporation (NASDAQ:KLAC) Surprises With Q2 Sales But Stock Drops On Weak Guidance

Adam Hejl /
2022/01/27 4:13 pm EST
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Maker of equipment for semiconductor manufacturing, KLA Corporation (NASDAQ:KLAC) reported results in line with analyst expectations in Q2 FY2022 quarter, with revenue up 42.5% year on year to $2.35 billion. However, management provided guidance for the next quarter with revenues at $2.2 billion at the midpoint, or 7.03% below analyst estimates. KLA Corporation made a GAAP profit of $717.5 million, improving on its profit of $456.9 million, in the same quarter last year.

Is now the time to buy KLA Corporation? Access our full analysis of the earnings results here, it's free.

KLA Corporation (KLAC) Q2 FY2022 Highlights:

  • Revenue: $2.35 billion vs analyst estimates of $2.33 billion (0.85% beat)
  • EPS (non-GAAP): $5.59 vs analyst estimates of $5.45 (2.53% beat)
  • Revenue guidance for Q3 2022 is $2.2 billion at the midpoint, below analyst estimates of $2.36 billion
  • Free cash flow of $745.8 million, roughly flat from previous quarter
  • Inventory Days Outstanding: 183, down from 192 previous quarter
  • Gross Margin (GAAP): 61.3%, up from 59.4% same quarter last year

"KLA's December quarter and calendar 2021 performance exceeded our expectations in a demanding and challenging environment. Our results underscore the importance of our products and solutions in the marketplace, consistent execution by our global teams, and technology leadership and innovation that is guided by the KLA Operating Model," commented Rick Wallace, president and chief executive officer of KLA Corporation.

Formed by the 1997 merger of the two leading semiconductor yield management companies, KLA Corporation (NASDAQ:KLAC) is the leading supplier of equipment used to measure and inspect semiconductor chips.

Sales Growth

KLA Corporation's revenue growth over the last three years has been strong, averaging 24.1% annually. And as you can see below, last year has been especially strong, with quarterly revenue growing from $1.65 billion to $2.35 billion. 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).

KLA Corporation Total Revenue

This was a great quarter for KLA Corporation with 42.5% revenue growth, beating analyst estimates by 0.85%.

KLA Corporation believes the growth is set to continue, and is guiding for revenue to grow 33.2% YoY next quarter, and Wall St analysts are estimating growth 17.5% over the next twelve months.

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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.

KLA Corporation Inventory Days Outstanding

This quarter, KLA Corporation’s inventory days came in at 183, 18 days below the five year average, showing no indication of an excessive inventory buildup at the moment.

Key Takeaways from KLA Corporation's Q2 Results

With a market capitalization of $57.7 billion, more than $2.81 billion in cash and with free cash flow over the last twelve months being positive, the company is in a very strong position to invest in growth.

We were impressed by the exceptional revenue growth KLA Corporation delivered this quarter. And we were also glad to see the inventory levels go down. On the other hand, it was unfortunate to see that the revenue guidance for the next quarter missed analysts' expectations. Zooming out, we think this was still a decent, albeit mixed, quarter, showing the company is staying on target. But investors might have been expecting more and the company is down 7.2% on the results and currently trades at $335 per share.

Should you invest in KLA Corporation 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.