A month has gone by since the last earnings report for Seagate (STX). Shares have added about 3.2% in that time frame, underperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Seagate due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Seagate Q4 Earnings & Revenues Miss Estimates, Up Y/Y
Seagate reported fourth-quarter fiscal 2020 non-GAAP earnings of $1.20 per share, which missed the Zacks Consensus Estimate by 6.3%. However, the figure surged 26% from the year-ago quarter.
Non-GAAP revenues of $2.517 billion lagged the Zacks Consensus Estimate by 3.4%. However, the figure improved 6% from the year-ago quarter.
Exabyte Shipments in Detail
During the reported quarter, Seagate shipped 117 exabytes of hard disk drive (HDD) storage, with an average capacity of record 4.5 terabytes (TB) per drive. This marked year-over-year improvement of 38.5% in the total HDD exabytes shipments. Sequentially, the figure declined 2.7%. Notably, average capacity improved from 4.1 TB and 2.7 TB reported in the prior quarter and the year-ago quarter, respectively.
The company shipped 90.5 exabytes for the mass capacity storage market (includes nearline and video and image applications, and network-attached storage or NAS). This marked a sequential decline of 0.7% in exabytes shipments. Average capacity per drive increased sequentially from 8.2 TB to 9.2 TB.
In the nearline market, the company shipped 79.5 exabytes of HDD, up 4.1% sequentially and with an average capacity of 10.8 terabytes. This was driven by robust demand for the company’s 16 TB capacity products.
The company shipped 26.4 exabytes for the Legacy market (includes mission-critical, notebook, desktop, gaming consoles, digital video recorders or DVR and external consumer devices) with an average capacity of 1.6 TB. This marked a sequential decline of 9.3% in exabytes shipments. Notably, average capacity remained flat sequentially.
This can be attributed to sluggishness in IT spending across small to medium enterprises, weakness across consumer end market, and soft demand for mission critical drives.
Notably, mass capacity and legacy verticals contributed 58% and 34% to total revenues, respectively.
Revenues by Product Group
Total HDD revenues (92% of revenues) increased 5.3% year over year to $2.321 billion in the reported quarter.
Non-HDD segment revenues (8%), which includes enterprise data solutions, cloud systems and SSDs, climbed 16.8% year over year to $195 million.
Non-GAAP gross margin expanded 20 basis points (bps) on a year-over-year basis to 27.3%. This includes an approximate 130 bps impact from higher logistic, underutilization and operational cost-related coronavirus disruption.
Non-GAAP operating expenses were down 5.2% on a year-over-year basis to $313 million.
Non-GAAP income from operations were $373 million, up 19.6% from the year-ago quarter’s figure. Consequently, non-GAAP operating margin expanded 160 bps from the prior-year quarter’s reported figure to 14.8%.
Balance Sheet and Cash Flow
As of Jul 3, 2020, cash and cash equivalents were $1.72 billion compared with $1.61 billion as of Apr 3, 2020. As of Jul 3, 2020, long-term debt (including current portion) came in at $4.175 billion, compared with $4.103 billion as of Apr 3, 2020.
Cash flow from operations was $388 million compared with $390 million reported in the previous quarter. Free cash flow for the reported quarter amounted to $274 million compared with $260 million in the last reported quarter.
In fiscal fourth quarter, the company repurchased 1.1 million shares worth $55 million and paid out dividends worth $168 million. Notably, Seagate’s board of directors approved a cash dividend of 65 cents per share, payable on Oct 7, to shareholders as on Sep 23.
Seagate anticipates first-quarter fiscal 2021 revenues of 2.3 billion (+/- 200 million). Non-GAAP earnings per share for fiscal first quarter is expected to be 85 cents (+/- 15 cents).
How Have Estimates Been Moving Since Then?
It turns out, estimates review have trended downward during the past month. The consensus estimate has shifted -40.1% due to these changes.
Currently, Seagate has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Seagate has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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