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Cree (CREE) to Report Q2 Earnings: What's in the Offing?

Zacks Equity Research

Cree Inc. CREE is set to report second-quarter fiscal 2019 earnings results on Jan 30. The company underperformed the Zacks Consensus Estimate for earnings in one of the trailing four quarters, recording average negative surprise of 9.7%.

Cree delivered non-GAAP earnings of 22 cents per share in first-quarter fiscal 2019, beating the Zacks Consensus Estimate of 12 cents.  Further, earnings were up from 4 cent reported in the year-ago quarter.

The company’s revenues totaled $408.3 million, up 13.3% year over year. The figure surpassed the Zacks Consensus Estimate of $407 million.

What to Expect?

The Zacks Consensus Estimate for the quarter under review is pegged at 17 cents, against the year-ago quarter’s loss of 1 cent. Moreover, the Zacks Consensus Estimate for revenues is pegged at $409.3 million, up roughly 11.3% from the year-ago quarter.

Notably, shares of Creehave returned 43.9% year over year, substantially outperforming the industry’s rally of 19.6%.

Let’s see how things are shaping up prior to this announcement.

Factors Likely to Influence Q2 Results

Growing demand for LED products, recovery in utilization rates and continued cost cutting measures from the company’s end is expected to positively impact to-be-reported quarter results.

We believe that Cree’s cross licensing agreements will help the company to drive innovation. Further, it will aid the company to gain better traction, resulting in top-line growth.

The company remains focused on driving growth in LED business. The company’s lighting products have been gaining momentum among the likes of McLaren Health Care, American Airlines Center, Quest, Food Bank of Central & Eastern North Carolina and Reston Hospital Center in the past year.

Notably, Cree had acquired assets of Infineon Technologies. This buyout will aid Cree expand its Wolfspeed business portfolio. It will also bolster the company’s position as a supplier of power and RF GaN-on-SiC power solutions.

Furthermore, this acquisition will poise the company well in aiding faster 5G networks.

Most recently, Cree’s Wolfspeed division inked a distribution deal with Arrow Electronics. Per the latest agreement, Arrow Electronics will be Cree’s largest global distributor for Wolfspeed’s industry-leading silicon carbide (SiC) and gallium nitride (GaN) on SiC product portfolio.

Notably, in the last reported quarter, Wolfspeed revenues surged 93% year over year to $127.4 million and accounted for 31% of total revenues. The Zacks Consensus Estimate for Wolfspeed is pegged at $138 million.

Lighting Products revenues of $134.1 million (accounting for 33% of total revenues), were down 10% on a year-over-year basis. The Zacks Consesus Estimate for Lighting Products is pegged at $130 million.

LED Products revenues were $146.8 million, up 2% a year-over-year basis. This accounted for 36% of total revenues. The Zacks Consensus Estimate for LED Products is pegged at $142 million.

What the Zacks Model Unveils?

Our proven model does not conclusively show that Cree is likely to beat earnings estimates this quarter. This is because a stock needs to have both a positive Earnings ESPand a Zacks Rank #1 (Strong Buy), 2 (Buy) or at least 3 (Hold) for this to happen. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Cree has a Zacks Rank #2 and an ESP of 0.00%.

Stocks With a Favorable Combination

Here are some companies you may want to consider as our model shows that these stocks have the right combination of elements to post an earnings beat:

SkyWest, Inc. SKYW has an Earnings ESP of +2.77% and a Zacks Rank #1.

ArcBest Corporation ARCB has an Earnings ESP of +4.78% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

NetScout Systems, Inc. NTCT has an Earnings ESP of +7.32% and a Zacks Rank #3.

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