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Why Is Seagate (STX) Up 5.5% Since Last Earnings Report?
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It has been about a month since the last earnings report for Seagate (STX - Free Report) . Shares have added about 5.5% in that time frame, underperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Seagate 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.
Seagate Q1 Earnings & Revenues Miss Estimates
Seagate has reported first-quarter fiscal 2023 non-GAAP earnings of 48 cents per share, missing the Zacks Consensus Estimate of 68 cents. The bottom line declined 80% from the year-ago quarter’s figure and 70% sequentially.
Management expected non-GAAP earnings per share to be “meaningfully below” the company’s previous guidance of at least $1.20 per share in the fiscal first quarter.
Non-GAAP revenues of $2.04 billion missed the Zacks Consensus Estimate by 1.9%. The figure declined 35% on a year-over-year basis and fell 23% sequentially. Management had projected revenues of $2.1 billion (+/- 100 million) for the fiscal first quarter.
Global macroeconomic weakness and significant inventory adjustments by customers and weakness in consumer spending acted as headwinds. Economic slowdowns and COVID lockdowns in China significantly affected mass capacity demand.
Seagate is focused on cutting costs to better align with changing market conditions and support the company’s long-term business strategy. The company has announced a restructuring plan to reduce the global workforce by 8% or approximately 3,000 employees, along with other cost-saving initiatives.
The above-mentioned plan is expected to complete by the end of fiscal second-quarter 2023 and result in pre-tax charges (cash-based employee severance and other one-time termination payments) between $60 and $70 million.
The company anticipates realizing run-rate savings of about $110 million on an annualized basis beginning from the fiscal third quarter of 2023.
Non-GAAP EPS for the fiscal second quarter is expected to be 15 cents per share (+/- 20 cents).
Exabyte Shipments in Detail
During the reported quarter, Seagate shipped 118.2 exabytes of hard disk drive (“HDD”) storage. This marked a year-over-year decline of 26% and a decrease of 24% sequentially.
Average mass capacity decreased 33% year over year to 7.5 TB and fell 3% sequentially.
The company shipped 104 exabytes for the mass capacity storage market (including nearline and video and image applications and network-attached storage). This marked a sequential decrease of 25% and a year-over-year decline of 21% in exabytes shipments. Average mass capacity per drive improved sequentially to 11.8 TB from 11.5 TB.
In the nearline market, the company shipped 85.1 exabytes of HDD, down 20% year over year and 28% sequentially.
The company shipped 14.3 exabytes for the Legacy market (which includes mission-critical notebooks, desktops, gaming consoles, digital video recorders or DVR and external consumer devices), down 47% year over year in exabyte shipments. Average capacity improved sequentially to 2.1 TB from 2.0TB.
Revenues by Product Group
Total HDD revenues (87.1% of revenues) declined 38% year over year to $1.77 billion in the reported quarter. On a sequential basis, revenues were down 26%.
Non-HDD segment revenues (12.9%), including enterprise data solutions, cloud systems and SSDs, were $263 million. This figure improved 5% on a year-over-year basis and 21% sequentially.
Margin Details
Non-GAAP gross margin contracted 650 basis points (bps) on a year-over-year basis to 24.5%.
Non-GAAP operating expenses were down 7% on a year-over-year basis to $314 million.
Non-GAAP income from operations totaled $184 million, down 70.7% from the year-ago quarter’s figure. Non-GAAP operating margin fell to 9% compared with the prior-year quarter’s reported figure of 20.1%.
Balance Sheet and Cash Flow
As of Sep 30, 2022, cash and cash equivalents were $761 million compared with $615 million as of Jul 1, 2022.
As of Sep 30, 2022, long-term debt (including the current portion) was $6.249 billion compared with $5.646 billion as of Jul 1, 2022.
Cash flow from operations was $245 million compared with $180 million reported in the previous quarter. Free cash flow in the reported quarter amounted to $112 million compared with $108 million in the previous quarter.
In the fiscal first quarter, the company repurchased 5.4 million shares worth $408 million and paid out cash dividends worth $147 million.
Seagate announced a quarterly cash dividend of 70 cents per share. The dividend will be paid out on Jan 5, 2023, to shareholders of record as of the close of business on Dec 21, 2022.
How Have Estimates Been Moving Since Then?
It turns out, estimates review have trended downward during the past month.
The consensus estimate has shifted -95.08% due to these changes.
VGM Scores
Currently, Seagate has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. 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 Seagate has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.
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Why Is Seagate (STX) Up 5.5% Since Last Earnings Report?
It has been about a month since the last earnings report for Seagate (STX - Free Report) . Shares have added about 5.5% in that time frame, underperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Seagate 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.
Seagate Q1 Earnings & Revenues Miss Estimates
Seagate has reported first-quarter fiscal 2023 non-GAAP earnings of 48 cents per share, missing the Zacks Consensus Estimate of 68 cents. The bottom line declined 80% from the year-ago quarter’s figure and 70% sequentially.
Management expected non-GAAP earnings per share to be “meaningfully below” the company’s previous guidance of at least $1.20 per share in the fiscal first quarter.
Non-GAAP revenues of $2.04 billion missed the Zacks Consensus Estimate by 1.9%. The figure declined 35% on a year-over-year basis and fell 23% sequentially. Management had projected revenues of $2.1 billion (+/- 100 million) for the fiscal first quarter.
Global macroeconomic weakness and significant inventory adjustments by customers and weakness in consumer spending acted as headwinds. Economic slowdowns and COVID lockdowns in China significantly affected mass capacity demand.
Seagate is focused on cutting costs to better align with changing market conditions and support the company’s long-term business strategy. The company has announced a restructuring plan to reduce the global workforce by 8% or approximately 3,000 employees, along with other cost-saving initiatives.
The above-mentioned plan is expected to complete by the end of fiscal second-quarter 2023 and result in pre-tax charges (cash-based employee severance and other one-time termination payments) between $60 and $70 million.
The company anticipates realizing run-rate savings of about $110 million on an annualized basis beginning from the fiscal third quarter of 2023.
Management anticipates second-quarter fiscal 2023 revenues of $1.85 billion (+/- 150 million).
Non-GAAP EPS for the fiscal second quarter is expected to be 15 cents per share (+/- 20 cents).
Exabyte Shipments in Detail
During the reported quarter, Seagate shipped 118.2 exabytes of hard disk drive (“HDD”) storage. This marked a year-over-year decline of 26% and a decrease of 24% sequentially.
Average mass capacity decreased 33% year over year to 7.5 TB and fell 3% sequentially.
The company shipped 104 exabytes for the mass capacity storage market (including nearline and video and image applications and network-attached storage). This marked a sequential decrease of 25% and a year-over-year decline of 21% in exabytes shipments. Average mass capacity per drive improved sequentially to 11.8 TB from 11.5 TB.
In the nearline market, the company shipped 85.1 exabytes of HDD, down 20% year over year and 28% sequentially.
The company shipped 14.3 exabytes for the Legacy market (which includes mission-critical notebooks, desktops, gaming consoles, digital video recorders or DVR and external consumer devices), down 47% year over year in exabyte shipments. Average capacity improved sequentially to 2.1 TB from 2.0TB.
Revenues by Product Group
Total HDD revenues (87.1% of revenues) declined 38% year over year to $1.77 billion in the reported quarter. On a sequential basis, revenues were down 26%.
Non-HDD segment revenues (12.9%), including enterprise data solutions, cloud systems and SSDs, were $263 million. This figure improved 5% on a year-over-year basis and 21% sequentially.
Margin Details
Non-GAAP gross margin contracted 650 basis points (bps) on a year-over-year basis to 24.5%.
Non-GAAP operating expenses were down 7% on a year-over-year basis to $314 million.
Non-GAAP income from operations totaled $184 million, down 70.7% from the year-ago quarter’s figure. Non-GAAP operating margin fell to 9% compared with the prior-year quarter’s reported figure of 20.1%.
Balance Sheet and Cash Flow
As of Sep 30, 2022, cash and cash equivalents were $761 million compared with $615 million as of Jul 1, 2022.
As of Sep 30, 2022, long-term debt (including the current portion) was $6.249 billion compared with $5.646 billion as of Jul 1, 2022.
Cash flow from operations was $245 million compared with $180 million reported in the previous quarter. Free cash flow in the reported quarter amounted to $112 million compared with $108 million in the previous quarter.
In the fiscal first quarter, the company repurchased 5.4 million shares worth $408 million and paid out cash dividends worth $147 million.
Seagate announced a quarterly cash dividend of 70 cents per share. The dividend will be paid out on Jan 5, 2023, to shareholders of record as of the close of business on Dec 21, 2022.
How Have Estimates Been Moving Since Then?
It turns out, estimates review have trended downward during the past month.
The consensus estimate has shifted -95.08% due to these changes.
VGM Scores
Currently, Seagate has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. 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 Seagate has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.