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Cree (CREE) Q1 Loss Narrower Than Expected, Revenues Beat

Zacks Equity Research

Cree Inc. CREE reported non-GAAP loss of 3 cents per share in first-quarter fiscal 2020 narrower than the Zacks Consensus Estimate of a loss of 5 cents.

Revenues came in at $242.8 million, down 11% year over year. However, the figure outpaced the Zacks Consensus Estimate of $240 million.

Cree had concluded the divestiture of Lighting Products business unit (or Cree Lighting) to IDEAL INDUSTRIES, Inc. The agreement includes the company’s LED lamps, corporate lighting solutions, and lighting fixtures aimed at industrial, consumer and commercial end-markets.

Notably, Cree Lighting will be reported under “discontinued operations.”

Shares of Cree have returned 18.6% in a year’s time, outperforming the industry’s rally of 15.6%.

Quarter Details

Cree now has two reportable segments – Wolfspeed and LED Products.

Wolfspeed revenues were flat year over year to $127.7 million and accounted for 53% of total revenues.

LED Products revenues were $115.1 million, down 22% on a year-over-year basis and accounted for 47% of total revenues. Weakness in worldwide trade uncertainties affected segmental revenues.

Non-GAAP gross margin was 31%, which contracted 500 bps on a year-over-year basis. Segment wise, LED Products gross margins contracted 900 bps, while Wolfspeed gross margins expanded 100 bps year over year.

Non-GAAP operating loss during the quarter came in at $8 million against an operating income of $28.9 million reported in the year-ago quarter.

Balance Sheet & Cash Flow

Cree exited first-quarter fiscal 2020 with cash, cash equivalents & short-term investments of $993.9 million compared with $1.05 billion reported in the previous quarter.

During the first quarter, cash used from operations was $20 million and free cash flow was ($63.1) million.

Guidance

For second-quarter fiscal 2020, Cree expects revenues in the range of $234-$240 million. The Zacks Consensus Estimate is pegged at $244.7 million.

Non-GAAP loss is projected in the range of 7-11 cents per share. The Zacks Consensus Estimate is pegged at 3 cents.

LED revenues are projected to be flat in second quarter. Wolfspeed business is anticipated to be down sequentially around (6%) to 3% on account of the “Huawei ban, softness in 5G network spending and lower electric vehicle sales in China.”

Non-GAAP gross margin is targeted at approximately 30%. Wolfspeed and LED margins are expected to be 41-44%% and 19.5-20.5%, respectively.

Zacks Rank & Stocks to Consider

Currently, Cree carries a Zacks Rank #4 (Sell).

Some better-ranked stocks in the broader technology sector are Vonage Holdings Corp. VG, Hewlett Packard Enterprise Company HPE and Taiwan Semiconductor Manufacturing Company Ltd. TSM. Each of the stocks flaunt a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings growth rate for Vonage, Hewlett Packard Enterprise and Taiwan Semiconductor is currently pegged at 5%, 7.4% and 10.4%, respectively.

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