Applied Materials Q3 Earnings & Revenues Top Estimates

Applied Materials Inc. AMAT reported third-quarter fiscal 2024 non-GAAP earnings of $2.12 per share, which surpassed the Zacks Consensus Estimate by 5.5%. Moreover, the figure improved 12% from the year-ago quarter.

Net revenues of $6.78 billion were up 5% from the year-ago quarter. The figure surpassed the  consensus estimate by 1.6%.

Strong momentum in the Display and Adjacent Markets and Applied Global Services (AGS) segments was a positive. The Semiconductor Systems segment's enhanced performance contributed to the results. AMAT also experienced solid momentum across the United States, Japan, Korea, China and Southeast Asia.

Shares of Applied Materials have gained 31.2% over a year, outperforming the industry's 17.4% growth.

However, weak momentum across Taiwan and Europe was a major negative.

Segments in Detail

Semiconductor Systems generated revenues worth $4.92 billion, which contributed 72.7% to its net revenues, reflecting growth of 5.3% from the year-ago quarter. The figure surpassed the Zacks Consensus Estimate by 2.3%

AGS reported revenues of $1.58 billion (23.3% of net revenues), up 7.9% from the prior-year quarter. The figure surpassed the consensus estimate by 0.5%.

Revenues from Display and Adjacent Markets were $251 million (3.7% of net revenues), up 6.8% from the year-ago quarter. The figure beat the consensus estimate by 2.4%.

Corporate and Other revenues were $23 million (0.3% of revenues), down 54% year over year.

Revenues by Geography

Revenues in the United States, Europe, Japan, Korea, Taiwan, Southeast Asia and China were $1.05 billion, $339 million, $555 million, $1.1 billion, $1.15 billion, $428 million and $2.15 billion, contributing 16%, 5%, 8%, 16%, 17%, 6% and 32% to net sales, respectively.

Revenues in the United States, Japan, Korea, Southeast Asia and China increased 1.3%, 16.1%, 11.5%, 137.8% and 24.2%, respectively, from the year-ago quarter. Revenues in Europe and Taiwan fell 48.7% and 14.6%, respectively, from the year-ago quarter.

Operating Results

The non-GAAP gross margin was 47.4%, which expanded 100 basis points (bps) from the year-ago quarter.

Operating expenses were $1.26 billion, up 8% from the year-ago quarter. As a percentage of sales, the figure expanded 50 bps from the year-earlier quarter to 18.7%.

The non-GAAP operating margin of 28.8% expanded 50 bps year over year.

Balance Sheet & Cash Flow

As of Jul 28, 2024, cash, cash equivalent balances and short-term investments were $9.1 billion, up from $7.6 billion as of Apr 28, 2024.

Inventories were $5.6 billion in the fiscal third quarter compared with $5.7 billion in second-quarter 2024. Accounts receivables increased to $4.97 billion from $4.8 billion in the previous quarter.

The long-term debt was $6.16 billion at the end of the quarter compared with $5.463 billion at the end of the previous quarter.

Applied Materials generated a free cash flow of $2.09 billion, up from $1.14 billion in the prior quarter.

AMAT returned $1.19 billion to its shareholders, of which share repurchases were worth $861 million and dividend payments amounted to $331 million.

Guidance

For the fiscal fourth quarter, Applied Materials expects net sales of $6.93 billion (+/-$400 million). The Zacks Consensus Estimate is pegged at $6.89 billion.

Semiconductor Systems, AGS and Display sales are anticipated to be $5.1 billion, $1.61 billion and $200 million, respectively.

Applied Materials expects a non-GAAP gross margin of 47.4% and non-GAAP operating expenses of $1.275 billion. It projects a non-GAAP tax rate of 12.5%.

Management expects non-GAAP earnings per share of $2.18 (+/-$0.18). The Zacks Consensus Estimate is pegged at $2.11.

Zacks Rank & Other Stocks to Consider

Applied Materials currently carries a Zacks Rank #2 (Buy).

Other top-ranked stocks in the broader technology sector are Badger Meter BMI, Arista Networks ANET and Adobe ADBE. While Badger Meter and Arista Networks sport a Zacks Rank #1 (Strong Buy) each, Adobe carries a Zacks Rank of 2 at present.

Badger Meter shares have gained 32.7% in the year-to-date period. The long-term earnings growth rate for BMI is currently projected at 17.91%.

Arista Networks shares have gained 41.5% in the year-to-date period. The long-term earnings growth rate for ANET is currently projected at 17.20%.

Adobe shares have gained 16.4% in the year-to-date period. The long-term earnings growth rate for ADBE is currently projected at 13.04%.

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