reported a solid start to fiscal 2023. Indeed, despite macroeconomic challenges and uncertain industry conditions, Q1 revenue climbed 11.2% from the prior year to $211.1 million. This was near the upper end of the company’s guided range of $203-213 million and well above the $201.0 million analysts had been anticipating, as strong demand for its high-end IC photomasks from Asian foundries, as well as for its high-end large-area masks used for mobile displays and G10.5+ masks used for ultra-large screen televisions, more than made up for softer demand for mainstream products. And while adjusted earnings of 40 cents per share came in at the bottom of PLAB’s target of 40-48 cents due to a less favorable mix and somewhat lower expediting premiums that customers pay to accelerate deliveries, this still represented strong bottom-line growth of 25.0% and met the consensus view thanks to the company’s ongoing discipline in controlling costs.
In terms of outlook, PLAB expects revenue of $205-215 million and earnings of 38-48 cents per share in the current quarter. While the midpoints of $210 million and 43 cents per share are below their respective consensus estimates of $214 million and 47 cents and suggest profits will be down about 12% from Q2 of fiscal 2022, this is actually consistent with my prior expectation for the strong margins the company had been enjoying last year to begin coming down as the slowing economic growth caused by rising inflation and interest rates starts dampening demand and pricing for its photomasks. Yet even with PLAB likely taking a cautious view due to limited visibility, which partly reflects its backlog typically being only one to three weeks out, the top-line growth of roughly 3% still implied by this guidance indicates demand remains steady.
What’s more, PLAB’s solid operating performance to start the year also led to the production of another $27.7 million in operating cash flow during the last quarter. Together with foreign currency gains on its existing cash balance of $27.5 million, this allowed the company to invest $31.1 million in growth through capital expenditures and still boost its net cash balance by an additional $24.0 million to $340.1 million. The latter now represents a whopping $5.53 per share or about a third of PLAB’s current stock price. When you consider that this excess cash will enable the company to continue aggressively investing to improve its operations, I think PLAB is well positioned to get through any cyclical softening in demand for its photomasks created by the orchestrated slowdown of global economic activity by central banks around the world and eventually return to getting the most out of the long-term secular tailwinds that still remain. This includes the ever-increasing number of applications across the consumer, commercial and industrial spectrums semiconductors are likely to keep finding their way into in the years ahead. If so, the stock, which has already recovered about half of the ground it initially lost on this quarterly news, should continue moving higher kind.
Julius Juenemann, CFA is the equity analyst and associate editor of the Forbes Special Situation Survey and Forbes Investor investment newsletters. Photronics (PLAB) is a current recommendation in the Forbes Investor. To access this and the other stocks being recommended through the Forbes Investor, click here to subscribe.