ASML Holding NV :ASMLF-US: Earnings Analysis: 2016 By the Numbers : March 10, 2017

ASML Holding NV reports financial results for the year ended December 31, 2016.

We analyze the earnings along side the following peers of ASML Holding NV – Hitachi Kokusai Electric Inc. Unsponsored ADR, Hitachi High-Technologies Corp. Unsponsored ADR and Lam Research Corporation (HTKKY-US, HICTY-US and LRCX-US) that have also reported for this period.

Highlights

  • Gross margins narrowed from 44.21% to 41.10% compared to the same period last year, operating (EBITDA) margins now 34.10% from 33.99%.
  • Year-on-year change in operating cash flow of -14.09% is about the same as the change in earnings, likely no significant movement in accruals or reserves.
  • Earnings rose compared to same period last year, despite decline in operating and pretax margins.

The table below shows the preliminary results and recent trends for key metrics such as revenues and net income growth:

2016 2015 2014 2013 2012
Relevant Numbers (Annual)
Revenues 7516.34 6972.2 7768.03 6963.79 6077.54
Revenue Growth (YOY) N/A N/A N/A N/A N/A
Earnings 1722.28 1795.89 1881.32 1584.97 1472.41
Earnings Growth (YOY) -4.1 -4.54 18.7 7.64 -27.83
Net Margin 22.91 25.76 24.22 22.76 24.23
EPS 4.03 4.15 4.28 3.65 3.44
Return on Equity 15.7 17.58 18.34 20.12 29.95
Return on Assets 9.7 11.37 11.53 11.92 15.34

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Earnings Growth Analysis

The company’s year-on-year earnings decline was driven by the drop in gross margins from 44.21% to 41.10%. This drop in earnings would have been worse were in not for operational cost control activities, which helped the operating margins (EBITDA margins) improve from 33.99% to 34.10%. For comparison purposes, gross margins were 44.21% and EBITDA margins were 33.99% in the previous period.

Gross Margin Versus EBITDA Margin

Quadrant label definitions. Hover to know more

Differentiated; Low Cost, Commodity; Low Cost, Commodity; High Cost, Differentiated; High Cost

Gross Margin Trend

Companies sometimes sacrifice improvements in revenues and margins in order to extend friendlier terms to customers and vendors. Capital Cube probes for such activity by comparing the changes in gross margins with any changes in working capital. If the gross margins improved without a worsening of working capital, it is possible that the company’s performance is a result of truly delivering in the marketplace and not simply an accounting prop-up using the balance sheet.

Gross Margin History
Working Capital Days History

ASMLF-US‘s decline in gross margins were offset by some improvements on the balance sheet. The management of working capital, for example, shows progress. The company’s working capital days have fallen to 249.51 days from 253.36 days for the same period last year. This leads Capital Cube to conclude that the gross margin decline is not altogether bad.

Gross Margin Versus Working Capital Days

Quadrant label definitions. Hover to know more

Customer Financed, Cash Starved, Supplier Financed, Cash Rich

Cash Versus Earnings – Sustainable Performance?

It is important to examine a company�s cash versus earnings numbers to gauge whether its performance is sustainable.

ASMLF-US‘s change in operating cash flow of -14.09% compared to the same period last year is about the same as its change in earnings this period. Additionally, this change in operating cash flow is about average among its peer group. This suggests that the company did not use accruals or reserves to manage earnings this period, and that, all else being equal, the earnings number is sustainable.

Operating Cash Flow Growth Versus Earnings Growth

Quadrant label definitions. Hover to know more

Cash Flow based Earnings, Likely Non-cash Earnings, Low Cash Flow Base, Likely Undeclared Earnings

Margins

Despite a decline in operating (EBIT) margins as well as a decline in pretax margins, the company’s earnings rose.

EBIT Margin Versus PreTax Margin

Quadrant label definitions. Hover to know more

Operation driven Earnings, One-time Favorables, Low Earnings Base, One-time Unfavorables
EBIT Margin History
PreTax Margin History

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Company Profile

ASML Holding NV engages in the manufacture, and trade of lithography systems for the semiconductor industry. It develops machines that are used for the production of integrated circuits and chips. The company was founded on April 1, 1984 and is headquartered in Veldhoven, Netherlands.

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