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Newport Corporation
Newport's Earnings and Guidance

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By leighs1
February 1, 2001

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Newport Corporations earnings report -- Higher growth expected

Much misinformation has been reported about the Newport Corporation based on their recent earnings report. The most glaring example was last week's quote from the LA Times (probable source: Bloomberg) that Newport's guidance for sales revenue growth in the coming year 2001 fell from 50% to 4%. This was a misprint. They corrected it days later in the Saturday times in the far corner of the Business section.

However, even in The Motley Fool, a front-page article by TMF Chris along with other articles on Yahoo finance, reported that Newport reduced revenue estimates in their core business in the coming year from previous guidance of 50% to a much lower 40%. This is not exactly correct. It has lead some to wonder whether fiber optics demand is less visible in a slowing economy.

[Aside from TMFChris:
When I mentioned the 40% growth estimate, I noted that it was in their "base businesses" -- which leaves out acquisitions, etc. My source for this was a
press release from Newport. Scroll down to the third paragraph under "business outlook," where it specifically separates out the $70 million you referred to.]

Such reporting can be misleading. This short article is to correct any faulty impression that may have stemmed from the mention of Newport in TMF Chris's article. Newport's guidance in third quarter release called for 2001 revenue growth in the RANGE between 40%-50% (www.newport.com). At that time, Newport was expecting the 4th quarter revenues to come in at about $82 million. Thus, the third quarter guidance of 40% to 50% revenue growth for 2001 was based on nine month 2000 actual revenue plus fourth quarter 2000 guidance.

That would have placed revenue (excluding acquisitions) in a range ($340 million -$370 million dollars). However, since that time, Newport's fourth quarter revenue has proved to be higher at $86.7 million. Given their fourth quarter upside surprise, the 40% guidance would place the estimate of revenue in their base business for the 2001 at about $354 million which would be in the middle of the range of previous revenue guidance ($340-$370 million).

Visibility of the back end of the year may be a bit cloudier due to the ebb and flow of PC maker industry, they noted. Thus the guidance toward the middle of their previous range estimates. However, demand for chips in hand-held toys and cell phones is still robust. As they said in their press release, their advanced motion control technology is not only used in semiconductors but also fiber optics. Newport noted NO softening in demand for fiber. As Newport mentioned in the recent conference call (www.newport.com) all indications are that the growth trend in fiber optics is continuing to see strong demand for manufacturing improvement "for all types of customers large and small."

In addition, the acquisition of Kensington and CE Johansson AB (Swedish) in their (non-base) robotics business is immediately accretive to revenue and is expected to add $70 million to 2001 revenue estimates. Their press release (www.newport.com) stated:

"Gross margin percentage in the first quarter of 2001 is expected to trend up from the third and fourth quarters of 2000 to the 44 to 45 percent range. Similarly, gross margin is expected to be in the same range for the full year as additional capacity allows for more efficient production. Additionally, sales of robotic equipment, which carries a higher margin, are expected to increase throughout the year largely as a result of the merger with Kensington Laboratories."

Given the addition, this would place coming year revenue estimates at about $424 million. Given enhanced margins, bottom line growth would be expected to be higher also. Therefore the coming year estimates are HIGHER than previously expected.