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Why is Micron (MU) Down 2.5% Since its Last Earnings Report?

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A month has gone by since the last earnings report for Micron Technology, Inc. MU. Shares have lost about 2.5% in that time frame.

Will the recent negative trend continue leading up to its next earnings release, or is MU due for a breakout? 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 drivers.

Micron (MU) Surpasses Q3 Earnings Estimates, Guides Well

Micron reported impressive results for the third quarter of fiscal 2018. The company registered year-over-year growth in both earnings and revenues and surpassed the Zacks Consensus Estimate as well.

Non-GAAP earnings per share came in at $3.15, beating the Zacks Consensus Estimate of $3.14 and higher than the guided range of $2.83 (+/- 7 cents). Earnings were also much higher than the year-ago quarter’s figure of $1.62 per share.

The stellar results were primarily attributable to strong demand across all business and product segments. This, along with proper execution by management, backed the solid performance.

Revenue Details

Micron’s revenues in the reported quarter climbed around 40.1% on a year-over-year basis to $7.797 billion. Reported revenues were up 6.1% on a quarter-over-quarter basis. The strong demand environment from data centers and cloud computing led to growth in the sales of DRAM and NAND solutions.

Quarterly revenues also came ahead of the company’s guided range of $7.2-$7.6 billion and surpassed the Zacks Consensus Estimate of $7.697 billion.

Sales from DRAM products, which accounted for 71% of total revenues during the quarter, were up a 56%, on a year-over-year basis, and 6% on a sequential basis. The company recorded mid to upper single-digit percentage rise in average selling price (ASP), driven by a higher mix of server and graphics DRAM demand.

Sales from NAND products, which accounted for 25% of total revenues, marked 14% year-over-year and 8% sequential growth. The company witnessed increase in ASP in mid to upper single-digit percentage, driven by higher value solutions in the portfolio.

Business unit wise, revenues of the computing and networking business (CMBU) unit surged 67% from the year-ago quarter and reached $4 billion. Sequentially, it marked 8% growth. The company’s cloud server and graphics memory product sales more than doubled year over year.

Revenues from the Mobile Business Unit (MBU) reached a record level of $1.8 billion, registering year-over-year jump of 55%. A surge in demand for the company’s low power DRAM products as well as its managed NAND products backed the commendable year-over-year improvement.

Revenues for the Storage Business Unit (SBU), which comprises SSD NAND components and 3D XPoint, sales came in at $1.1 billion. Notably, the company has joined forces with Intel for the development of 3D XPoint technology. However, the ongoing shift in NAND supply and lower 3D XPoint sales resulted in a 9% sequential decline in the segment.

The Embedded business unit reported revenues of $897 million, up 28% from the year-ago quarter and 8% from the previous quarter. The growth was backed by industrial and consumer applications including the likes of industrial drones and factor automation among others.

Income and Margins

Micron’s non-GAAP gross profit registered 77.8% increase from the prior-year period and came in at $4.75 billion. Non-GAAP gross margin advanced from 48% to 60.9%.

Micron’s non-GAAP operating income came in at $4.017 billion compared with just $2.071 billion reported in the prior-year quarter. Non-GAAP operating margin improved to 51.5% from 37.2% reported in third-quarter fiscal 2017.

The impressive year-over-year improvement in gross margin was chiefly driven by better mix of high-value products and efficient cost management.

On a non-GAAP basis, the company reported net income of $3.898 billion compared with $1.896 billion witnessed in the comparable quarter last fiscal.

Balance Sheet and Cash Flow

The company exited the fiscal third quarter with cash and short-term investments of $7.07 billion compared with $8.04 billion at the end of the fiscal second quarter. Receivables were $4.91 billion compared with $4.44 billion recorded in the previous quarter. Micron’s long-term debt declined to $5.89 billion from $7.80 billion in the prior quarter.

The company generated operating cash flow of $4.26 billion and adjusted free cash flow of $2.16 billion during the reported quarter. Capital expenditure totaled $2.1 billion in the fiscal third quarter.

Outlook

The company provided outlook for fourth-quarter fiscal 2018. Micron projects revenues in the range of $8-$8.4 billion.

Non-GAAP gross margin is projected between 59% and 62%. Operating expenses on a non-GAAP basis are likely to be $750 million (+/- $25 million).

The company expects non-GAAP earnings per share to be roughly $3.30 (+/- 7 cents).

Furthermore, Micron expects its capital expenditure in fiscal 2018 to remain around $8 billion.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates. There have been six revisions higher for the current quarter.

Micron Technology, Inc. Price and Consensus

 

Micron Technology, Inc. Price and Consensus | Micron Technology, Inc. Quote

VGM Scores

At this time, MU has a nice Growth Score of B, though it is lagging a lot on the momentum front with a D. However, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Our style scores indicate that the stock is more suitable for value investors than growth investors.

Outlook

Estimates have been trending upward for the stock and the magnitude of these revisions looks promising. It comes with little surprise MU has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.


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