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Lumentum (LITE) to Report Q2 Earnings: What's in the Cards?

Zacks Equity Research

Lumentum Holdings Inc. LITE is set to report second-quarter fiscal 2019 results on Feb 5.

The company beat the Zacks Consensus Estimate in the trailing four quarters, delivering average positive surprise of 32%. In the last reported quarter, the company’s earnings of $1.31 per share surpassed the Zacks Consensus Estimate by 28 cents. The figure also came ahead of the year-ago quarter earnings of 43 cents per share.

Revenues increased 45.6% year over year to $354.1 million and came ahead of the Zacks Consensus Estimate of $352 million.

Lumentum received a request from Apple to reduce shipment of laser diodes for 3D sensing due to sluggish iPhone demand. Following the request, the company slashed its revenue and operating margin guidance for the to-be reported quarter. Now the company expects revenues between $335 million and $355 million and earnings between $1.15 and $1.34 per share.  

The Zacks Consensus Estimate for second-quarter earnings has declined 5.6% in the past 30 days to $1.18 per share. Earnings are estimated to decline 29.3% year over year. Further, the consensus mark for revenues is pegged at $356.4 million, down roughly 11.2% from the year-ago quarter.

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

Lumentum Holdings Inc. Price and EPS Surprise

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

Factors Likely to Influence Q2 Results

Laser-based 3D sensing is a rapidly developing market and Lumentum has significant growth opportunities supported by its innovative product portfolio. The company’s acquisition of Oclaro is expected to strengthen the company’s position in the fiber-optic components segment and make it a market leader in 3D sensing.

In first-quarter 2019, Lumentum witnessed strong customer demand for its Optical Communication products, which increased 49% year over year. Within this segment, the major contributor was the Telecom group, which increased 29% year over year.  Notably, this momentum is expected to continue in the to-be-reported quarter.

The company is also ramping up effort to boost its footprint in the Telecom end-market with the rollout of 100G and 400G products. Notably, Lumentum and Innovium validated the interoperability of 400G FR4 optics with TERALYNX switch in December.

Lumentum is witnessing strong ROADMs demand on the back of its differentiated products including Twin 1x35 and the MxN, which bodes well for the company.

In the last-reported quarter, management stated that it has increased production capacity to meet increasing customer demand.

However, the company witnessed a sequential decline in Datacom revenues in the last reported quarter. Further, the company expects this segment to decline in the range of 20% and 30%, which will adversely revenues in the to-be reported quarter.

Lumentum expects high margin lasers business revenues to stay flat in the second quarter, primarily due to seasonality, which is likely to have an impact on overall operating margin. Moreover, the company expects operating expenses to increase every quarter, which is expected to keep margins under pressure.

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. The Sell-rated stocks (Zacks Rank #4 or 5) are best avoided.

Lumentum has a Zacks Rank #2 and an Earnings ESP of +1.10%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Other Stocks With a Favorable Combination

Here are some companies, which, per our model, also have the right combination of elements to post an earnings beat in their upcoming releases:

Twitter, Inc. TWTR has an Earnings ESP of +13.03% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Vipshop Holdings Limited VIPS has an Earnings ESP of +5.26% and a Zacks Rank #1.

Square, Inc. SQ has an Earnings ESP of +6.06% and a Zacks Rank #2.

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