gs: BRKS (IL/C): Mixed CQ3 results with
disappointing CQ4 guidance
52-Week Range US$19-12
YTD Price Change -23.35%
Market Cap US$595.3mn
Current Yield —
Brooks Automation reported mixed CQ3 results. Operating EPS of $0.00 (GS/Street
-$0.05) was above expectations on higher margins and higher other income. CQ3 orders
were light at -8% Q/Q vs. flat to +5% Q/Q guidance. CQ4 orders were guided +10-15%
Q/Q for the core Brooks business, driven primarily by software contract renewals. CQ4
guidance was confusing due to the inclusion of 2-months of Helix results and ESOs, but
we view it as disappointing relative to Street expectations with operating LPS guided to
~$0.00 to -$0.05 vs. the Street $0.08 estimate. We are raising our well below consensus
EPS estimates due to accretion from the Helix merger (we are including ESOs): CY06
goes to $0.05 from -$0.29 (Street $0.74). No change to our IL/C rating as we believe
fundamentals are choppy and the stock lacks valuation support as it is trading at 2.4x
tangible BV vs. its historical trough of 1.1x.
NO CHANGE TO IL/C RATING AS WE BELIEVE BUSINESS CONDITIONS ARE
CHOPPY AND THE STOCK LACKS VALUATION SUPPORT. Brooks reported mixed
CQ3 results. CQ3 operating EPS of $0.00 was $0.05 above the GS and Street LPS
estimate of -$0.05. Upside to EPS was driven primarily by higher gross margins (35.6%
vs. our 34.0% estimate) and higher other income. CQ3 bookings were light of expectations at -8%
Q/Q vs. guidance for bookings of flat to +5% Q/Q. CQ4 guidance was confusing due to the
inclusion of 2 months of the Helix merger as well as ESO expenses. CQ4 revenues were guided to
$120M - $125M (+16% to +21% Q/Q), including about $30M contributed by Helix. Excluding
Helix results, revenues were guided down about -8% to -13% Q/Q vs. the Street +12% Q/Q estimate
(the Street estimate also excluded the Helix merger). Operating EPS including Helix results was
guided to about $0.00 to -$0.05, which is also meaningfully below the Street $0.08 EPS estimate.
We would note that earnings weakness is primarily being driven by weak conditions at the core
Brooks business, as management indicated that it expects Helix to be accretive to operating income
in CQ4. Bookings for the core Brooks business were guided up 15% - 20% Q/Q in CQ4, which is
better than expected, but being driven primarily by higher software bookings due to service
maintenance contract renewals.
No change to our IL/C rating as we expect fundamentals to remain choppy and Street EPS estimates
remain far too high, with the Street modeling about 300%+ Y/Y EPS growth in 2006 (not including
the impact of the Helix merger). While we expect the Helix deal to be accretive to EPS (note that we
are raising our below consensus CY2006 and CY2007 EPS estimates due to the merger), we would
highlight the usual integration risks as Brooks assimilates the Helix business into its model and
attempts to take significant costs out of the combined entity. Further, we believe that the stock lacks
valuation support as it is trading at 2.4x tangible book value of ~$5.40 vs. its historical trough, on
average, for the last three downturns of 1.1x tangible book value. While we prefer to use normalized
EPS to value the stock, we would note that the company generates almost no earnings over the
course of the full cycle even including the positive impact to EPS from the Helix merger.
CQ3 RESULTS MIXED WITH HIGHER EPS BUT LIGHT BOOKINGS. Brooks reported CQ3
operating EPS of $0.00 (excluding the amortization of acquired intangible assets and restructuring
related charges) vs. the GS and Street LPS estimate of -$0.05. Sales of $103M (-9% Q/Q) were
in-line with our estimate. EPS upside during the quarter was driven by higher than expected gross
margins (35.6% vs. our 34.0% estimate) and higher other income ($1.5M vs. our $0.5M estimate).
Better than expected gross margins were driven primarily by a more favorable hardware revenue
mix. New orders of $86M (-8% Q/Q) were well below our $95M (+1% Q/Q) estimate and guidance
of flat to +5% Q/Q. Hardware and software bookings both declined during the quarter.
RAISING OUR BELOW-CONSENSUS EPS ESTIMATES DUE TO ACCRETION FROM THE
HELIX MERGER. We are raising our significantly below consensus estimates due to accretion
from the Helix merger: (1) CY2005 EPS estimate goes to $0.13 from $0.04 (Street $0.22; FY2005
EPS estimate to $0.25 from $0.20); (2) CY2006 EPS goes to $0.05 from an LPS of -$0.29 (Street
$0.74; FY2006 LPS estimate to -$0.05 from -$0.37); and (3) CY2007 EPS estimate goes to $0.55
from $0.45 (No Street estimate available; FY2007 EPS goes to $0.43 from $0.28). Without the
inclusion of the Helix acquisition, we would not be making any changes to our estimates.
Each of the analysts named below hereby certifies that... |
