GS: Brooks Automation, Inc. (BRKS)
Technology
BRKS (IL/C): CQ2 EPS higher on better
gross margins but CQ3 guidance $0.14
below consensus
52-Week Range US$19-12
YTD Price Change -3.60%
Market Cap US$744.3mn
Current Yield —
Long Term Growth Rate
EPS Growth Estimate NA
Fiscal Year (ending in Sep)
2004 2005E 2006E
US$0.79 US$0.20 US$-0.37
Brooks Automation reported CQ2 operating EPS of $0.06, above the GS and Street $0.03
estimate primarily driven by better than expected gross margins. CQ3 guidance is
significantly below the Street with sales guided - 10% Q/Q vs. the Street +3% Q/Q
estimate. CQ3 LPS was guided to -$0.07, $0.14 below the Street and $0.02 below our
Street-low estimate. Tweaking our significantly below-consensus EPS estimates: CY05
goes to $0.04 from $0.03 on the higher CQ2 EPS (Street $0.36) and CY06 goes to -$0.29
from - $0.15 (Street $0.73) on the weaker outlook. We believe the disappointing CQ3
outlook is consistent with our view that declining SPE shipments in H2? 05 will drive
worsening fundamentals at BRKS. Further, we don?t believe the stock has valuation
support as it is trading at 3.0x tangible book value vs. its historical trough of 1.1x. As
such, there is no change to our IL/C rating.
MAINTAIN IL/C RATING AS CQ3 LPS GUIDANCE IS $0.14 BELOW THE STREET
AND WE EXPECT FUNDAMENTALS TO CONTINUE TO DISAPPOINT DRIVEN
BY DECLINING SPE SHIPMENTS IN H2'05. Brooks reported CQ2 operating EPS of
$0.06, $0.03 above the GS and Street $0.03 estimate. Sales were essentially in-line with
the company's negative revenue preannouncement in mid-July. After a few consecutive quarters of
disappointing gross margin performance, gross margins came in higher than expected in CQ2
(35.2% vs. our 34.5% estimate) and drove the majority of the EPS upside during the quarter, in
addition to higher other income and lower taxes. The CQ3 outlook is significantly worse than
expected, with CQ3 sales guided down about 10% Q/Q vs. the Street +3% Q/Q estimate and CQ3
operating LPS guided to -$0.10 to -$0.04 vs. the Street EPS estimate of $0.07. The mid-point of
CQ3 LPS guidance of -$0.07 is $0.02 below our previous Street-low LPS estimate of -$0.05 and
$0.14 below the Street consensus.
No change to our IL/C rating. We believe that the disappointing CQ3 outlook is consistent with our
view that declining semi equipment shipments in H2'05 due to significantly front-half loaded
customer capex budgets will drive weakening fundamentals at Brooks (about 50% of Brooks'
business is driven by SPE shipments). Further, we believe that the stock lacks valuation support as it
is trading at 3.0x tangible book value of $5.50 vs. its historical trough, on average, for the last three
downturns of 1.1x tangible book value. Note that we would prefer to use normalized EPS to value
the stock as we believe it best represents the company earnings generation potential over the course
of the full cycle, but we estimate that the company will generate operating losses over the course of
the current cycle.
CQ2 EPS UPSIDE DRIVEN PRIMARILY BY HIGHER GROSS MARGINS. Brooks reported
CQ2 operating EPS of $0.06 (excluding the amortization of acquired intangible assets, restructuring
and acquisition related charges, and losses from discontinued operations) vs. the GS and Street
$0.03 estimate on sales of $113.8M (-12% Q/Q), essentially in-line with the company's negative
revenue preannouncement in mid-July during which CQ2 sales were guided to $111-$113M. EPS
upside during the quarter was driven primarily by higher than expected gross margins (35.2% vs.
our 34.5% estimate) as well as by higher other income and lower taxes. Gross margin improvement
appears to have come from the factory hardware segment where gross margins increased to 26.4%
vs. 15.6% in CQ1. New orders of $94M (-18% Q/Q) were 6% below our $100M (-13% Q/Q)
estimate. CQ3 bookings were guided flat to up 5% Q/Q.
Table 2. CQ2 Revenue breakdown by geography
Segment Revenues Percent of Total Sequential Change
US $58.0 51% -12%
Asia $18.2 16% -30%
Europe $37.5 33% 0%
Total $113.8 100% -12%
Source: Company data, Goldman Sachs Research estimates.
Table 3. CQ2 Revenue breakdown by product segments
Segment Revenues Percent of Total Sequential Change
Factory hardware $21.9 19% -33%
Tool automation $69.4 61% -2%
Factory software $22.4 20% -14%
Total $113.8 100% -12%
Source: Company data, Goldman Sachs Research estimates.
Table 4. Management's explicit CQ3 guidance
$/% Sequential Change
Revenue $100M to $105M -12% to -8%
Q/Q Gross margin 33.5% to 34.5% vs. 35.2% in CQ2
Operating expenses $36.6M vs. $36.6m in CQ2
Taxes $1.2M vs. $1.3M in CQ2
EPS/LPS GAAP -$0.07 to -$0.13 vs. +$0.02 in CQ2
EPS/LPS (operating) -$0.04 to $-0.10 vs +$0.06 in CQ2
Orders $94M to $99M Flat to +5% Q/Q
Source: Company data, Goldman Sachs Research estimates.
TWEAKING OUR SIGNIFICANTLY BELOW CONSENSUS ESTIMATES. We are tweaking our
significantly below consensus estimates: (1) our CY2005 EPS estimate goes to $0.04 from $0.03
(Street $0.36) on the better than expected CQ2 EPS (FY2005 EPS estimate to $0.20 from $0.17);
(2) CY2006 LPS goes to -$0.29 from -$0.15 (Street $0.73) on the weaker than expected outlook
(FY2006 LPS estimate to -$0.37 from -$0.25). No change to our CY2007 EPS estimate of $0.45.
Each of the analysts named below hereby certifies that, with respect to each subject company and its
securities for which the analyst is responsible in this report, (1) all of the views expressed in this
report accurately reflect his or her personal views about the subject companies and securities, and
(2) no part of his or her compensation was, is, or will be, directly or indirectly, related to the
specific recommendations or views expressed in this report: James Covello, Amanda Hindlian. |
