Seagate Beat Earnings Forecasts. Why the Stock Is Falling.
By Eric J. Savitz https://www.barrons.com/articles/seagate-stock-tumbles-after-mixed-earnings-51603406668?siteid=yhoof2
Updated Oct. 23, 2020 8:14 am ET / Original Oct. 22, 2020 6:44 pm ET
Seagate, the Fremont Research Center building Silicon Valley
Seagate Technology shares are falling sharply in late trading Thursday following the disk-drive maker’s September quarter earnings report. as the company continues to see lingering impact on its business from the pandemic-related economic slowdown.
For the fiscal first quarter, Seagate (ticker: STX) posted revenue of $2.31 billion, down 10.2% from a year ago, and slightly below the Street consensus at $2.34 billion. The company had projected revenue of $2.3 billion, give or take $200 million. Non-GAAP profits were 93 cents a share, down from $1.03 a year ago, but above the company’s forecast of 85 cents a share, plus or minus 15 cents. It beat the Wall Street consensus for 88 cents.
The company also said its board approved a $3 billion increase in its share repurchase authorization, boosting the total to $4.2 billion. And Seagate increased its dividend by 3%, or 2 cents, to 67 cents quarterly.
Seagate said in a presentation created for this afternoon’s earnings call that Covid-related costs “remain a margin headwind,” though slightly better than originally expected. Non-GAAP gross margin was 26.5%, down from 27.3% in the June quarter and 26.7% a year ago.
Total drive capacity shipped in the quarter was 114.4 exabytes, down from 117 exabytes in the June quarter and 120 exabytes in the March quarter. Average capacity per drive was 8.2 terabytes, down from 9.2 terabytes one quarter earlier. Free cash flow fell to $186 million, from $274 million in the June quarter and $309 million a year ago. Meanwhile, days inventory outstanding jumped to 70, from 56, while days payables outstanding stretched to 95, from 89.
For the December quarter, Seagate sees revenue of $2.55 billion, give or take $200 million, with non-GAAP profits of $1.10 a share, plus or minus 15 cents. Street consensus has been $2.48 billion and $1.08 a share.
“Seagate delivered solid September quarter results supported by strong recovery in the video and image applications market and healthy cloud data center demand, which drove double digit year-over-year revenue growth for our mass capacity storage solutions,” CEO Dave Mosley said in a statement. “We see indications for Enterprise demand to improve and we expect this to continue as the broader markets gradually recover, supporting our positive December quarter outlook and reinforcing our revenue expectations for the fiscal year.”
Seagate was off 2.9%, to $50.30 in premarket trading. Shares of disk-drive rival Western Digital (WDC) are off 1.7%, to $42.21