It has been about a month since the last earnings report for Cree . Shares have added about 1.8% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Cree 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 drivers.
Cree Q3 Loss Narrower Than Estimated, Revenues Top
Cree Inc. reported third-quarter fiscal 2021 non-GAAP loss of 22 cents per share, which was narrower than the Zacks Consensus Estimate of a loss of 23 cents. Notably, the company had reported loss of 17 cents per share in the year-ago quarter. Non-GAAP loss was anticipated to be 21-25 cents per share.
Revenues of $137.3 million surpassed the consensus mark by 5.86%. The top line grew 21% year over year and 8% sequentially on improving Wolfspeed revenues. For third-quarter fiscal 2021, Cree had projected revenues in the range of $127 million to $133 million.
On Oct 18, 2020, Cree inked deal to sell the LED Products business unit to SMART Global Holdings, Inc. (or SMART). On Mar 1, 2021, the company concluded the transaction for up to $300 million, including fixed upfront and deferred payments and contingent consideration. The deal is projected to aid Cree support the industry’s transition from silicon to silicon carbide (SiC).
As a result of the divestiture of Cree LED to SMART, LED segment is classified as discontinued operations starting from the fiscal second quarter.
Quarter Details
Wolfspeed products comprise power devices and RF devices, and SiC and gallium nitride (GaN) materials. In materials business, modest uptick in order flow was a positive.
Management is banking on synergies from partnership with Arrow Electronics, and incremental adoption of SiC products in new applications. Markedly, Cree rolled out 650-volt silicon carbide MOSFET products and 1,200-volt WolfPACK module portfolio in alliance with Arrow Electronics. Management noted that the partnership has generated an opportunity pipeline of more than $800 million with various deals already in the design-in stage and others transitioning to design win.
The company’s expertise in SiC technology and expanding clientele despite coronavirus-induced headwinds hold promise.
In power domain, management witnessed solid demand for 650-volt MOSFET platform across a number of industry verticals. Although supply levels are below normal due to COVID-19 safety guidelines in place, Cree made progress in the quarter and expects to enhance its capacity expansion plan.
In RF businesses, increased 5G activity and traction across communications infrastructure providers was noteworthy. Moreover, backlog growth driven by 5G roll outs globally remains encouraging.
Supply constraints due to continued COVID-19 safety measures weighed on Cree’s non-GAAP gross margin for continuing operations, which came at 35%, contracting 400 basis points (bps) on a year-over-year basis and 40 bps sequentially. The quarter-over-quarter decline in gross margin can be attributed to temporarily higher factory costs as the company expanded capacity in its Durham fab. Non-GAAP gross margin was guided in the range of 34.5% to 36.5%.
Non-GAAP operating loss during the quarter was $32 million compared with operating loss of $26.8 million in the year-ago quarter.
Balance Sheet & Cash Flow
Cree had cash, cash equivalents & short-term investments of $1.293 billion as of Mar 28, 2021 compared with $968.7 million as of Dec 27, 2020.
During the fiscal third quarter, cash utilized by operating activities was $26.8 million compared with $29 million used in the year-ago quarter.
Free cash outflow was $165 million, compared with free cash outflow of $173.7 million in the year-ago quarter.
Guidance
For fourth-quarter fiscal 2021, Cree expects revenues in the range of $142 million to $148 million. The top line is anticipated to gain from ongoing momentum in the power devices business and improving factory utilization in materials business. Also, strength in RF vertical and order flow in materials product line remain encouraging.
Non-GAAP loss is projected to be 26-22 cents per share. Non-GAAP gross margin is expected to be 32-34%. The anticipated sequential decline is attributed to short-term impacts pertaining to unfavorable product mix.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -12.5% due to these changes.
VGM Scores
Currently, Cree has a subpar Growth Score of D, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of F on the value side, putting it in the fifth quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Cree has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.
Image: Bigstock
Cree (CREE) Up 1.8% Since Last Earnings Report: Can It Continue?
It has been about a month since the last earnings report for Cree . Shares have added about 1.8% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Cree 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 drivers.
Cree Q3 Loss Narrower Than Estimated, Revenues Top
Cree Inc. reported third-quarter fiscal 2021 non-GAAP loss of 22 cents per share, which was narrower than the Zacks Consensus Estimate of a loss of 23 cents. Notably, the company had reported loss of 17 cents per share in the year-ago quarter. Non-GAAP loss was anticipated to be 21-25 cents per share.
Revenues of $137.3 million surpassed the consensus mark by 5.86%. The top line grew 21% year over year and 8% sequentially on improving Wolfspeed revenues. For third-quarter fiscal 2021, Cree had projected revenues in the range of $127 million to $133 million.
On Oct 18, 2020, Cree inked deal to sell the LED Products business unit to SMART Global Holdings, Inc. (or SMART). On Mar 1, 2021, the company concluded the transaction for up to $300 million, including fixed upfront and deferred payments and contingent consideration. The deal is projected to aid Cree support the industry’s transition from silicon to silicon carbide (SiC).
As a result of the divestiture of Cree LED to SMART, LED segment is classified as discontinued operations starting from the fiscal second quarter.
Quarter Details
Wolfspeed products comprise power devices and RF devices, and SiC and gallium nitride (GaN) materials. In materials business, modest uptick in order flow was a positive.
Management is banking on synergies from partnership with Arrow Electronics, and incremental adoption of SiC products in new applications. Markedly, Cree rolled out 650-volt silicon carbide MOSFET products and 1,200-volt WolfPACK module portfolio in alliance with Arrow Electronics. Management noted that the partnership has generated an opportunity pipeline of more than $800 million with various deals already in the design-in stage and others transitioning to design win.
The company’s expertise in SiC technology and expanding clientele despite coronavirus-induced headwinds hold promise.
In power domain, management witnessed solid demand for 650-volt MOSFET platform across a number of industry verticals. Although supply levels are below normal due to COVID-19 safety guidelines in place, Cree made progress in the quarter and expects to enhance its capacity expansion plan.
In RF businesses, increased 5G activity and traction across communications infrastructure providers was noteworthy. Moreover, backlog growth driven by 5G roll outs globally remains encouraging.
Supply constraints due to continued COVID-19 safety measures weighed on Cree’s non-GAAP gross margin for continuing operations, which came at 35%, contracting 400 basis points (bps) on a year-over-year basis and 40 bps sequentially. The quarter-over-quarter decline in gross margin can be attributed to temporarily higher factory costs as the company expanded capacity in its Durham fab. Non-GAAP gross margin was guided in the range of 34.5% to 36.5%.
Non-GAAP operating loss during the quarter was $32 million compared with operating loss of $26.8 million in the year-ago quarter.
Balance Sheet & Cash Flow
Cree had cash, cash equivalents & short-term investments of $1.293 billion as of Mar 28, 2021 compared with $968.7 million as of Dec 27, 2020.
During the fiscal third quarter, cash utilized by operating activities was $26.8 million compared with $29 million used in the year-ago quarter.
Free cash outflow was $165 million, compared with free cash outflow of $173.7 million in the year-ago quarter.
Guidance
For fourth-quarter fiscal 2021, Cree expects revenues in the range of $142 million to $148 million. The top line is anticipated to gain from ongoing momentum in the power devices business and improving factory utilization in materials business. Also, strength in RF vertical and order flow in materials product line remain encouraging.
Non-GAAP loss is projected to be 26-22 cents per share. Non-GAAP gross margin is expected to be 32-34%. The anticipated sequential decline is attributed to short-term impacts pertaining to unfavorable product mix.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -12.5% due to these changes.
VGM Scores
Currently, Cree has a subpar Growth Score of D, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of F on the value side, putting it in the fifth quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Cree has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.