Global electronics solutions provider Benchmark Electronics (NYSE:BHE) met Wall Street’s revenue expectations in Q4 CY2024, but sales fell by 5% year on year to $656.9 million. The company expects next quarter’s revenue to be around $640 million, close to analysts’ estimates. Its non-GAAP profit of $0.61 per share was 8.9% above analysts’ consensus estimates.

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“The past year has reinforced that our strategy is working, as we have continued to drive margin expansion and free cash flow generation. Our demonstrated execution across cycles gives me confidence in our ability to continue to drive value for our stakeholders,” said Jeff Benck, Benchmark’s President and CEO.

Company Overview

Based in Tempe, Arizona, Benchmark Electronics (NYSE:BHE) is a global provider of product design, engineering services, technology solutions, and manufacturing services.

Electrical Systems

Like many equipment and component manufacturers, electrical systems companies are buoyed by secular trends such as connectivity and industrial automation. More specific pockets of strong demand include Internet of Things (IoT) connectivity and the 5G telecom upgrade cycle, which can benefit companies whose cables and conduits fit those needs. But like the broader industrials sector, these companies are also at the whim of economic cycles. Interest rates, for example, can greatly impact projects that drive demand for these products.

Sales Growth

Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can have short-term success, but a top-tier one grows for years. Over the last five years, Benchmark Electronics grew its sales at a sluggish 3.2% compounded annual growth rate. This fell short of our benchmark for the industrials sector and is a tough starting point 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. Benchmark Electronics’s history shows it grew in the past but relinquished its gains over the last two years, as its revenue fell by 4.1% annually. Benchmark Electronics isn’t alone in its struggles as the Electrical Systems industry experienced a cyclical downturn, with many similar businesses observing lower sales at this time.

This quarter, Benchmark Electronics reported a rather uninspiring 5% year-on-year revenue decline to $656.9 million of revenue, in line with Wall Street’s estimates. Company management is currently guiding for a 5.3% year-on-year decline in sales next quarter.

Looking further ahead, sell-side analysts expect revenue to grow 4% over the next 12 months. Although this projection suggests its newer products and services will fuel better top-line performance, it is still below the sector average.

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Operating Margin

Benchmark Electronics was profitable over the last five years but held back by its large cost base. Its average operating margin of 3.5% was weak for an industrials business. This result isn’t too surprising given its low gross margin as a starting point.

On the plus side, Benchmark Electronics’s operating margin rose by 2.2 percentage points over the last five years.

This quarter, Benchmark Electronics generated an operating profit margin of 4.3%, in line with the same quarter last year. This indicates the company’s cost structure has recently been stable.

Earnings Per Share

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Benchmark Electronics’s EPS grew at a solid 11.4% compounded annual growth rate over the last five years, higher than its 3.2% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.

Diving into the nuances of Benchmark Electronics’s earnings can give us a better understanding of its performance. As we mentioned earlier, Benchmark Electronics’s operating margin was flat this quarter but expanded by 2.2 percentage points over the last five years. This was the most relevant factor (aside from the revenue impact) behind its higher earnings; taxes and interest expenses can also affect EPS but don’t tell us as much about a company’s fundamentals.

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 Benchmark Electronics, its two-year annual EPS growth of 3.5% was lower than its five-year trend. We hope its growth can accelerate in the future.

In Q4, Benchmark Electronics reported EPS at $0.61, up from $0.58 in the same quarter last year. This print beat analysts’ estimates by 8.9%. Over the next 12 months, Wall Street expects Benchmark Electronics’s full-year EPS of $2.26 to grow 7.7%.

Key Takeaways from Benchmark Electronics’s Q4 Results

It was great to see Benchmark Electronics’s EPS beat and its EPS guidance for next quarter exceed analysts’ expectations. On a less exciting note, its revenue was only in line. Zooming out, we think this was a decent quarter. The stock traded up 3% to $44.94 immediately following the results.

Is Benchmark Electronics an attractive investment opportunity right now? 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.