Why Is Seagate (STX) Down 3.3% Since Last Earnings Report?
It has been about a month since the last earnings report for Seagate (STX). Shares have lost about 3.3% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Seagate 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.
Seagate Q2 Earnings Beat Estimates
Seagate reported second-quarter fiscal 2024 non-GAAP earnings of 12 cents per share. The Zacks Consensus Estimate was pegged at a loss of 7 cents per share. The company reported non-GAAP earnings of 16 cents in the year-ago quarter.
Management anticipated second-quarter fiscal 2024 non-GAAP loss to be 10 cents (+/- 20 cents).
Non-GAAP revenues of $1.555 billion missed the Zacks Consensus Estimate by 0.3%. The figure declined 18% on a year-over-year basis. However, revenues improved 7% sequentially. Management projected revenues to be $1.55 billion (+/- $150 million) for the fiscal second quarter.
Sequentially, the company witnessed mass capacity demand improvement owing to stronger nearline cloud demand which offset a decline in the VIA market.
Seagate noted that the launch of Mozaic 3+ hard drive platform last week, which features Heat-Assisted Magnetic Recording technology, positioned it well to capture share in the mass capacity storage solutions market.
Exabyte Shipments in Detail
In the reported quarter, Seagate shipped 95.1 exabytes of HDD storage, down 15% year over year. However, this marked an increase of 6% sequentially.
Average mass capacity increased 12% year over year and 11% sequentially to 8.2TB.
The company shipped 83.2 exabytes for the mass-capacity storage market (including nearline, video and image applications, and network-attached storage). This recorded a year-over-year plunge of 14% in exabytes shipments. However, exabyte shipments rose 5% sequentially. Average mass capacity per drive jumped sequentially to 11.9 TB from 10.3 TB.
In the nearline market, it shipped 65.1 exabytes of HDD, down 18% year over year but up 16% sequentially.
Seagate shipped 12 exabytes for the legacy market (which includes mission-critical notebooks, desktops, gaming consoles, digital video recorders or DVR and external consumer devices), down 25% year over year but up 15% sequentially. Average capacity improved by 19% year over year to 2.6 TB.
Revenues by Product Group
Total revenues of HDD (89% of revenues) tumbled 17% year over year to $1.384 billion in the reported quarter. On a sequential basis, revenues were up 7%.
Systems, SSD & Other segment’s revenues (11%) including enterprise data solutions, cloud systems and solid-state drives were $171 million, down 24% on a year-over-year basis but up 8% sequentially.
Our estimates for revenues from HDD and non-HDD segments were $1.386 billion and $159 million, respectively.
Margin Details
Non-GAAP gross margin improved to 23.6% from 21.4% in the prior-year quarter.
Non-GAAP operating expenses were down 18% on a year-over-year basis to $240 million.
Non-GAAP income from operations totaled $127 million, up from $109 million a year ago. Non-GAAP operating margin increased to 8.2% from 5.8% in the year-earlier quarter.
Balance Sheet and Cash Flow
As of Dec 29, 2023, cash and cash equivalents were $787 million compared with $795 million as of Sep 29, 2023.
As of Dec 29, 2023, long-term debt (including the current portion) was $5.669 billion compared with $5.666 billion as of Sep 29, 2023.
Cash flow from operations was $169 million compared with $251 million in the previous quarter. Free cash flow amounted to $99 million compared with $172 million in the previous quarter.
STX paid $146 million as dividends in the fiscal second quarter. It exited the quarter with 210 million shares outstanding.
Outlook
Management anticipates third-quarter fiscal 2024 revenues to be $1.65 billion (+/- $150 million).
Non-GAAP loss for the fiscal third quarter is expected to be 25 cents per share (+/- 20 cents).
STX expects incremental improvements in mass capacity demand from cloud and enterprise clients to more than offset seasonal downtick in demand in both VIA and legacy markets.
The non-GAAP operating expenses are expected to be $260 million. At the midpoint of the revenue guidance, management expects non-GAAP operating margin to expand to the low double-digit percentage range (including underutilization expenses of $50 million).
How Have Estimates Been Moving Since Then?
Estimates review followed an upward path over the past two months.
VGM Scores
Currently, Seagate has an average Growth Score of C, though it is lagging a bit on the Momentum Score front with a D. Following the exact same course, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Seagate has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.
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