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Lumentum (LITE) Stock Up on Q4 Earnings & Revenues Beat

Zacks Equity Research
·5 min read

Lumentum Holdings LITE reported fourth-quarter fiscal 2020 non-GAAP earnings of $1.18 per share, which beat the Zacks Consensus Estimate by 42.2%. Moreover, the bottom line improved 29.7% year over year. The company had anticipated non-GAAP earnings in the range of 70-90 cents per share.

Net revenues of $368.1 million surpassed the Zacks Consensus Estimate by 5.2%. However, the top line declined 9% from the year-ago quarter, led by sluggishness in Optical Communications and Commercial Laser segments. Lumentum had projected fiscal fourth-quarter revenues between $325 million and $365 million.

Shares Up on Encouraging Q1 View

Following better-than-expected results and encouraging guidance for first-quarter of fiscal 2021, shares of Lumentum hit the day’s high of $94.46 on Aug 11, eventually closing at $89.84, up 2.1%. Increasing production capacity and demand momentum in Datacom chips, led to better-than-anticipated performance.

Lumentum expects first-quarter fiscal 2021 net revenues between $430 million and $455 million. The Zacks Consensus Estimate is currently pegged at $429.6 million.

Non-GAAP earnings are expected between $1.40 and $1.55 per share in first-quarter fiscal 2021. The Zacks Consensus Estimate is currently pegged at $1.30.



Notably, on a year-to-date basis, the company’s stock has returned 13.3%, outperforming industry’s growth of 1.4%.

Top-Line Details

Optical Communications segment (89.7% of net revenues) revenues fell 7.4% year over year to $330.3 million.

Within the segment, Telecom & Datacom (77.6% of Optical revenues) revenues declined 4.8% year over year to $330.3 million.

Sluggish sales of Telecom transmission products, owing to COVID-19 supply challenges limited growth in the quarter under review. Strength in pump laser sales and robust adoption of wavelength management and ROADM products failed to stem the decline.

Nevertheless, solid Datacom chip demand contributed to revenues. Management noted that chip sales represented more than 95% to Datacom revenues. Datacom chip backlog was $150 million. However, wafer fab capacity and supply constraints limited growth.

Higher customer engagement in new Datacom photonic chips, including 5G wireless and data center applications, contributed to revenues in the reported quarter.

Industrial & Consumer (22.4% of Optical revenues) revenues slumped 15.6% year over year to $73.9 million owing to seasonality.

Commercial Laser segment (10.3% of net revenues) revenues decreased 20.9% to $37.8 million. Coronavirus crisis induced macroeconomic slowdown led to decline in fiber laser sales during the quarter.

Operating Details

Non-GAAP total gross margin expanded 830 basis points (bps) from the year-ago quarter to 47.2% on improving product mix.

Non-GAAP optical communication gross margin expanded 830 bps from the year-ago quarter to 46.6% courtesy of higher Telecom & Datacom product mix and synergies from Oclaro acquisition.

Non-GAAP commercial laser gross margin expanded 940 bps from the year-ago quarter to 52.9% on favorable product mix and lower manufacturing costs.

Non-GAAP operating expense expanded 250 bps to 22.4% in the reported quarter.

Non-GAAP operating margin expanded 580 bps from the year-ago quarter to 24.8% on account of gross margin expansion and lower spend on travel, trade show, and other related expenses owing to COVID 19 induced shelter-in-place guidelines.
 

Lumentum Holdings Inc. Price, Consensus and EPS Surprise

Lumentum Holdings Inc. Price, Consensus and EPS Surprise
Lumentum Holdings Inc. Price, Consensus and EPS Surprise

Lumentum Holdings Inc. price-consensus-eps-surprise-chart | Lumentum Holdings Inc. Quote

Non-GAAP research and development (R&D) expenses fell 1.1% year over year to $45.9 million. Non-GAAP selling, general and administrative expenses (SG&A) surged 6.7% year over year to $36.6 million.

Balance Sheet

The company exited fiscal fourth quarter with $1.554 billion in total cash and short-term investments, compared with $1.451 billion in third-quarter fiscal 2020.

Guidance in Detail

For first-quarter fiscal 2021, non-GAAP operating margin is anticipated in the range of 28-30%.

Management anticipates first-fiscal quarter 2021 Telecom & Datacom revenues to be up sequentially on demand momentum and recovery from COVID 19 supply constraints. Industrial & Consumer domain is expected to improve on a quarter-over-quarter basis due to seasonality pertaining to consumer electronics product cycle.

Lumentum expects Commercial lasers revenues to decline 25% sequentially, on global slowdown in industrial production and seasonally weak fiscal first quarter.

Also, the company expects momentum to continue in its 3D sensing business courtesy of increased customer popularity.

Conclusion

Lumentum’s strength in Datacom chips and strong pipeline hold promise. Also, encouraging guidance is anticipated to instill investor optimism in the stock.

However, increasing expenditure on product development with an aim to add innovative capabilities to 3D sensing offerings amid competition from Himax HIMX and Microchip MCHP is likely to weigh on profitability.

Also, the challenges pertaining to smartphone supply chain, and customer concentration from Apple AAPL, remain key risks.

Lumentum currently carries a Zacks Rank #4 (Sell).

You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.

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