Electronic measurement provider Keysight (NYSE:KEYS) reported Q4 CY2024 results topping the market’s revenue expectations, with sales up 3.1% year on year to $1.30 billion. The company expects next quarter’s revenue to be around $1.28 billion, close to analysts’ estimates. Its non-GAAP profit of $1.82 per share was 7.6% above analysts’ consensus estimates.
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Keysight (KEYS) Q4 CY2024 Highlights:
- Revenue: $1.30 billion vs analyst estimates of $1.28 billion (3.1% year-on-year growth, 1.7% beat)
- Adjusted EPS: $1.82 vs analyst estimates of $1.69 (7.6% beat)
- Revenue Guidance for Q1 CY2025 is $1.28 billion at the midpoint, roughly in line with what analysts were expecting
- Adjusted EPS guidance for Q1 CY2025 is $1.64 at the midpoint, above analyst estimates of $1.59
- Operating Margin: 16.8%, in line with the same quarter last year
- Free Cash Flow Margin: 26.7%, up from 22.3% in the same quarter last year
- Market Capitalization: $29.99 billion
“Keysight delivered strong first quarter results, reflecting year-over-year growth in revenues and orders. The demand environment remains consistent with our view of a gradual recovery in 2025,” said Satish Dhanasekaran, Keysight’s President and CEO.
Company Overview
Spun off from Hewlett-Packard in 2014, Keysight (NYSE:KEYS) offers electronic measurement products for use in various sectors.
Inspection Instruments
Measurement and inspection instrument companies may enjoy more steady demand because products such as water meters are non-discretionary and mandated for replacement at predictable intervals. In the last decade, digitization and data collection have driven innovation in the space, leading to incremental sales. But like the broader industrials sector, measurement and inspection instrument companies are at the whim of economic cycles. Interest rates, for example, can greatly impact civil, commercial, and residential construction projects that drive demand.
Sales Growth
Examining a company’s long-term performance can provide clues about its quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Unfortunately, Keysight’s 2.7% annualized revenue growth over the last five years was sluggish. This fell short of our benchmarks and is a poor baseline for our analysis.
Long-term growth is the most important, but within industrials, a half-decade historical view may miss new industry trends or demand cycles. Keysight’s history shows it grew in the past but relinquished its gains over the last two years, as its revenue fell by 4.9% annually. 
This quarter, Keysight reported modest year-on-year revenue growth of 3.1% but beat Wall Street’s estimates by 1.7%. Company management is currently guiding for a 5.3% year-on-year increase in sales next quarter.
Looking further ahead, sell-side analysts expect revenue to grow 5.6% over the next 12 months. While this projection suggests its newer products and services will fuel better top-line performance, it is still below average for the sector.
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Operating Margin
Operating margin is one of the best measures of profitability because it tells us how much money a company takes home after procuring and manufacturing its products, marketing and selling those products, and most importantly, keeping them relevant through research and development.
Keysight has been a well-oiled machine over the last five years. It demonstrated elite profitability for an industrials business, boasting an average operating margin of 21.3%. This result isn’t surprising as its high gross margin gives it a favorable starting point.
Analyzing the trend in its profitability, Keysight’s operating margin decreased by 1.4 percentage points over the last five years. This raises an eyebrow about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability.
This quarter, Keysight generated an operating profit margin of 16.8%, in line with the same quarter last year. This indicates the company’s cost structure has recently been stable.
Earnings Per Share
We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.
Keysight’s EPS grew at an unimpressive 5% compounded annual growth rate over the last five years. This performance was better than its flat revenue but doesn’t tell us much about its business quality because its operating margin didn’t expand.
We can take a deeper look into Keysight’s earnings to better understand the drivers of its performance. A five-year view shows that Keysight has repurchased its stock, shrinking its share count by 8.9%. This tells us its EPS outperformed its revenue not because of increased operational efficiency but financial engineering, as buybacks boost per share earnings. 
Like with revenue, we analyze EPS over a more recent period because it can provide insight into an emerging theme or development for the business.
For Keysight, its two-year annual EPS declines of 10.1% show it’s continued to underperform. These results were bad no matter how you slice the data.
In Q4, Keysight reported EPS at $1.82, up from $1.63 in the same quarter last year. This print beat analysts’ estimates by 7.6%. Over the next 12 months, Wall Street expects Keysight’s full-year EPS of $6.45 to grow 10.9%.
Key Takeaways from Keysight’s Q4 Results
It was encouraging to see Keysight beat analysts’ revenue and EPS expectations this quarter. We were also glad its EPS guidance for next quarter exceeded Wall Street’s estimates. Overall, this quarter had some key positives, but shares traded down 1.5% to $169.50 immediately after reporting.
Should you buy the stock or not? The latest quarter does matter, but not nearly as much as longer-term fundamentals and valuation, when deciding if the stock is a buy. We cover that in our actionable full research report which you can read here, it’s free.