KLA Corporation: Earnings, Challenging Market Conditions, Limited Visibility

KLA Corporation (NASDAQ:KLAC) has just published its quarterly earnings results. It reported GAAP net income of $582.5 million and GAAP earnings per diluted share of $4.28 on revenue of $2.49 billion. According to Rick Wallace, the results were well ahead of the expectations. However, the company’s indicators still seem to be lower compared to the previous periods. Let me cover this in some more detail in this article.

Recap of my previous article

In my previous article on KLA Corporation, I gave a bullish forecast on its stock. The company has been recording revenue and EPS growth for a while, whilst its valuations have been quite moderate in comparison to its peers in the semiconductors and artificial intelligence industries. The main risk was that of an economic slowdown. Moreover, the semiconductors industry is reliant on the political factors, including the US-China relations. But overall, the stock had good prospects, in my opinion. KLAC’s stock price has risen substantially since then. Now I am writing an update of this company.

Earnings press release and earnings history

At short, the results exceeded expectations.

• The total sales were $2.49 billion, above the midpoint of the guidance range.
• GAAP diluted EPS attributable to KLA was $4.28, whilst non-GAAP diluted EPS attributable to KLA was $6.16, near the upper end of the guidance range.
• The cash flows from operating activities for the quarter totaled $622.2 million, whilst for the last twelve months these were $3.48 billion. The free cash flow for the quarter was $545.4 million and $3.17 billion for the 12 months, respectively.

But let us have a look at these in the context of KLA’s earnings history.

KLA Corporation – quarterly revenues and earnings

Click to enlarge

Source: Seeking Alpha

Compared to the previous quarters, the recently reported net income figure was not great, by all means. The sales, however, were reasonable and quite in line with the previous periods. At the same time, the net income decline can be explained by a $219.0 million impairment charge for goodwill and purchased intangible assets, or $1.59 per diluted share. So, overall, the quarterly earnings were good.

KLA Corporation – annual revenues and earnings

Click to enlarge

Source: Seeking Alpha

Although my article is mostly centered around the recent quarterly earnings, I would briefly touch on the company’s annual results history. If we look at the table, the sales and net income picture looks almost impeccable. However, we can see there was a net income growth slowdown between 2022 and 2023.

Other news and developments

But what about other news and developments? Well, the management issued rather cautious guidance, whilst the stock price is down about 7% as I am writing this. Investors appeared to look poorly at the company’s near future and the next quarter’s results. The management expects the total revenue to range from $2.175 billion to $2.425 billion in the next quarter, which is below the analysts’ expectations of $2.46 billion. KLA expects the EPS to range from $4.66 to $5.86, versus the expectations of $5.86. According to the company’s CEO, the “market conditions remain challenging in the near term, with limited visibility regarding the timing of a resumption in sustainable demand“. However, Rick Wallace simultaneously believes the company “has stabilized around current revenue levels“.

But it seems clear the growth rate has slowed down in the past quarter. Only the Specialty Semiconductor Process segment has shown positive revenue growth. However, the PCB, Display and Component Inspection and Semiconductor Process Control have shown negative growth number of (34%) and (6%) respectively.

Breakdown of Revenue by Reportable Segments and End Markets

In spite of the rather poor revenue results, the company can still afford to pay dividends. In September 2023 KLA announced a 14th consecutive annual dividend increase, a rise of 12% to $1.45 per share from $1.30 per share. The total 2024 dividend is expected to be $5.80. This is quite a sign of stability. Few companies in the high-tech sector increase dividends for so many consecutive years.

Other fundamentals

The company’s financial fundamentals are quite sound. In fact, KLA Corporation is rated…