FEI Company’s Earnings Go Under the Microscope, and the Results Still Aren't Pretty

High-performance microscopy maker significantly reduces its guidance.

Matthew DiLallo
Matthew DiLallo
Oct 31, 2015 at 8:20AM
Industrials

Headlines during earnings season often fail to tell the whole story. A company can report an awful headline number, but when those results are looked at under a microscope, we often find that the numbers aren't as bad as feared. Unfortunately, that's not the case when we take a close look at FEI Company's (NASDAQ:FEIC) third-quarter results. The report, which hit the wires after the closing bell on Tuesday, wasn't pretty either way.

FEI results: The raw numbers

 

Q3 2015 Actuals

Q3 2014 Actuals

Growth (YOY)

Revenue

$213 million

$228 million

-6.7%

Net income

$10 million

$22 million

-54.5%

EPS

$0.25

$0.51

-51%

SOURCE: FEI Company.

What happened with FEI this quarter?
Even after some adjustments, FEI reported a pretty weak quarter.

  • FEI's revenue would have been $10 million higher if it wasn't for the negative impact from foreign currencies. Even if that impact is adjusted, revenue still slumped 2.4% year over year, and was below the low-end of the company's own guidance range by $2 million.
  • The main culprit was weaker-than-expected activity from the company's large semiconductor customers, which fell short of its forecast.
  • This weakness had an impact on earnings, which slumped significantly. However, there were two more moving parts here after the company recorded a $6.1 million, or $0.15 per share, tax benefit, which was more than offset by a $24 million, or $0.58 per share, asset impairment charge relating to assets supporting its oil and gas business.
  • If we adjust for these two items, earnings would have been much stronger, at $0.68 per share, which still missed the low-end of the company's own guidance of $0.02 per share.
  • If there was a highlight this quarter, it was the company's new order bookings, which were $234 million for the quarter. That resulted in a book-to-bill of 1.10-to-1, which suggests future revenue growth. Further, these bookings grew the company's backlog to $562 million.
  • FEI also announced the acquisition of DCG Systems for $160 million in cash. The company supplies systems to semiconductor and electronics manufacturers.

What management had to say
CEO Don Kania pinpointed what happened this quarter by noting in the press release that: "Activity at our large semiconductor customers fell short of our forecast in the third quarter... Near-term spending at our semiconductor customers is being affected as the industry transitions to 10nm devices."

This weakness is due to the fact that Intel (NASDAQ:INTC) announced last quarter that its 10nm hardware will be delayed until the second half of 2017. To compensate for that delay, Intel plans to release a third 14mn product next year. Intel CEO Brian Krzanich said that this "addition to the roadmap will deliver new features and improved performance and pave the way for a smooth transition to 10mn." While it might pave the way for a smooth transition by semiconductors, the same can't be said for FEI's sales to those customers.

Looking forward
FEI is projecting a strong finish to the year with fourth-quarter revenue expected to be in the range of $260 million to $275 million, while earnings are expected to be $1.05-$1.20 per share. However, the damage has already been done, which is why FEI is pulling back on full-year guidance.

The company now expects organic revenue growth of 1%-2.5% this year, which is down from the 4%-7% growth it forecasted just last quarter. Meanwhile, earnings are expected to be in the range of $2.85 to $3.00 per share, which is well off of the $3.40 to $3.70 per share from its previous forecast.