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What to Expect from Lumentum Holdings (LITE) in Q3 Earnings

Zacks Equity Research

Lumentum Holdings LITE is set to report third-quarter fiscal 2019 results on May 7.

Notably, the company’s earnings beat the Zacks Consensus Estimate in three of the trailing four quarters and missed estimates in the remaining quarter, the average positive surprise being 19.78%.

Lumentum reported earnings of $1.15 per share in the last reported quarter, which missed the Zacks Consensus Estimate by 3 cents and decreased 31% on a year-over-year basis. Net sales of $373.7 million beat the consensus estimate of $356 million but decreased 7.6% on a year-over-year basis.

Lumentum Holdings Inc. Price and EPS Surprise

Lumentum Holdings Inc. Price and EPS Surprise | Lumentum Holdings Inc. Quote

The Zacks Consensus Estimate for third-quarter earnings has remained steady at 85 cents per share over the past seven days. The figure indicates an increase of 8.9% from the year-ago period. Management anticipates non-GAAP earnings in the range of 76-94 cents in the to-be-reported quarter.

Notably, the consensus mark for revenues is pegged at $430.5 million, indicating solid growth of 44.1% from the year-ago reported figure. Management expects net revenues in the range of $420-$440 million in the to-be-reported quarter.

Let’s see how things are shaping up for the upcoming announcement.

Factors Likely to Influence Q3 Results

Lumentum is expected to witness strength in telecom, lasers and datacom revenues in third-quarter fiscal 2019.

Notably, telecom revenues are expected to increase on the back of growth in reconfigurable optical add-drop multiplexer (ROADM) sales in the to-be-reported quarter. Additionally, Lumentum is expected to benefit from the contribution of Oclaro's telecom product lines, which it acquired at the end of second-quarter fiscal 2019.

Moreover, laser revenues in the to-be-reported quarter are expected to benefit from growth in new products. Notably, Lumentum is also expected to have a competitive edge in indium phosphide lasers due to the Oclaro acquisition.

Further, the company expects to use the lasers to witness adoption in consumer and automotive market. This is likely to aid laser segment’s growth in third-quarter fiscal 2019.

Also, Lumentum expects datacom revenues to increase in the range of $50-55 million primarily due to the acquisition strength. Notably, the acquisition will help Lumentum drive its chip sales across a range of photonic chips, which are used in datacom as well as wireless and access market.

However, industrial and consumer revenues are expected to decline in the to-be-reported quarter due to customer seasonality in the consumer electronics space. Moreover, increasing investments in new product development and higher research and development (R&D) expense from the acquisition may prove to be a drag on margins. This may hurt profitability in third-quarter fiscal 2019.

What Our Model Says

According to the Zacks model, a company with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) has a good chance of beating estimates if it also has a positive Earnings ESP.  Sell-rated stocks (Zacks Rank #4 or 5) are best avoided.

Lumentum has a Zacks Rank #3 and an Earnings ESP of 0.00%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Stocks to Consider

Here are some companies, which, per our model, have the right combination of elements to post earnings beat this quarter:

Synopsys, Inc. SNPS has an Earnings ESP of +1.15% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Fujifilm Holdings Corp. FUJIY has an Earnings ESP of +20.55% and a Zacks Rank #1.

Agilent Technologies, Inc. A has an Earnings ESP of +2.10% and a Zacks Rank #2.

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