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Why Is Micron (MU) Down 2.3% Since Last Earnings Report?

Zacks Equity Research

It has been about a month since the last earnings report for Micron (MU). Shares have lost about 2.3% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Micron due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Micron Reports Q2 Results

Micron reported stronger-than-anticipated results for second-quarter fiscal 2020. The company’s fiscal second-quarter non-GAAP earnings per share of 45 cents beat the Zacks Consensus Estimate by 18.4% and surpassed its guided range of 35 cents (+/- 6 cents) as well.

Moreover, quarterly revenues of $4.8 billion outpaced the consensus mark of $4.6 billion. The memory chip maker’s revenues also came in line with the higher-end of management’s guided range of $4.5-$4.8 billion.

Nonetheless, top and bottom lines both declined on a year-over-year basis. While revenues fell 17.8%, non-GAAP earnings slumped 73.7%.

Revenue Details

DRAM revenues of $3.1 billion, accounting for 64% of total revenues in the fiscal second quarter, slid 26% year over year and 11% sequentially. Bit shipments rose more than 20%, year on year, but were down nearly 10% sequentially. On a sequential basis, ASP was flat.

NAND revenues of $1.5 billion, representing 32% of the total top line, were up 9% on a year-over-year basis and 6% quarter on quarter. While NAND ASP increased in the upper single-digit’s percentage band, shipment quantities declined in low-single-digit percent range sequentially. Shipments grew approximately 20% year over year.

Business-unit wise, revenues of the computing and networking business (CNBU) unit deteriorated 17% from the year-ago quarter and 1% sequentially to $2 billion. The CNBU segment includes revenues from 3D XPoint. Excluding revenues from 3D XPoint, CNBU revenues declined 7% sequentially due to softer sales in the PC market.

Revenues of $1.3 billion from the Mobile Business Unit (MBU) dropped 22% on a year-over-year basis and 14% sequentially.

The Embedded Business Unit revenues logged $696 million, down 13% from the year-ago quarter and 5% from the previous quarter.

Revenues from the Storage Business Unit (SBU) comprising SSD NAND components and 3D XPoint totaled $870 million, down 15% year over year and 10% sequentially. Excluding 3D XPoint sales, SBU revenues increased 9% sequentially.

Margins

Micron’s non-GAAP gross profit of $1.4 billion slumped 52.3% from the prior-year period. Non-GAAP gross margin slipped from 50.2% in the year-ago quarter to 29.1%. Underutilization charges at the Lehi Lab had a negative impact of nearly 295 basis points.

Micron’s non-GAAP operating income of $542 million declined from the year-ago quarter’s $2.1 billion. Non-GAAP operating margin contracted from 36.2% to 11.3%.

Balance Sheet and Cash Flow

The company exited the reported quarter with cash and short-term investments of $7.5 billion compared with the $7.6 billion recorded at the end of the prior quarter.

Micron’s long-term debt of $5.2 billion remained flat quarter on quarter.

The company generated operating cash flow of $4 billion during the first half of fiscal 2020. Adjusted free cash flow during the first six months of fiscal 2020 is $149 million.

The company repurchased shares worth $159 million in the first half of fiscal 2020.

Guidance for Q3

Buoyed by better-than-expected quarterly results, Micron provided an upbeat guidance for the fiscal third quarter. The company anticipates revenues of $4.6¬-$5.2 billion (mid-point $4.9 billion) for the quarter.

For the fiscal third quarter, Micron expects non-GAAP gross margin of 31% (+/- 150 bps). Higher underutilization charges due to contracted production volumes are likely to be a dampener.

Operating expenses on a non-GAAP basis are likely to be $825 million (+/- $25 million).

Earnings per share are anticipated to be 55 cents (+/- 15 cents).

How Have Estimates Been Moving Since Then?

It turns out, estimates review flatlined during the past month.

VGM Scores

At this time, Micron has a subpar Growth Score of D, however its Momentum Score is doing a lot better with a B. Charting a somewhat similar path, 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 B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Micron has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.



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