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Why Is Seagate (STX) Down 0.5% 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 lost about 0.5% in that time frame, outperforming 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 catalysts.

Seagate Q2 Earnings & Revenues Beat Estimates

Seagate reported second-quarter fiscal 2022 non-GAAP earnings of $2.41 per share, beating the Zacks Consensus Estimate by 2.1%. The bottom line increased 87% from the year-ago quarter’s figure and 3% sequentially.

Management had anticipated non-GAAP earnings per share (EPS) for the fiscal second quarter to be $2.35 per share (+/- 15 cents).

Non-GAAP revenues of $3.116 billion outpaced the Zacks Consensus Estimate by 0.3%. The figure improved 19% on a year-over-year basis but was unchanged sequentially. Management had anticipated fiscal second-quarter revenues of 3.1 billion (+/- 150 million).

Robust demand for its mass capacity storage solutions, especially nearline products from cloud data center customers, boosted the top line.

Seagate noted that pandemic-induced supply chain disruptions and other pressures would continue to dent operating margins at least in the near term. Nevertheless, the company expects industry-wide structural changes and the company’s own disciplined execution to cushion operating margin in the long haul.

The company raised the long-term outlook for non-GAAP operating margin between 18% and 22% of revenues. Earlier, the company had projected non-GAAP operating margin between 15% and 20% of revenues. For the fiscal third quarter, Seagate stated that it expects non-GAAP operating margin to be at the lower end of its new long-term range of 18-22% of revenues.

Exabyte Shipments in Detail

During the reported quarter, Seagate shipped 163.2 exabytes of hard disk drive (“HDD”) storage, with an average capacity of record 6.1 terabytes (TB) per drive. This marked a year-over-year improvement of 26% and sequential growth of 3% in total HDD exabytes shipments.

Average mass capacity improved to 6.1 TB from 4.3 TB (up 41%) reported in the year-ago quarter and increased from 5.7 TB (up 8%) reported in the previous quarter.

The company shipped 137.1 exabytes for the mass capacity storage market (includes nearline and video and image applications as well as network-attached storage or NAS). This marked sequential growth of 4% and year-over-year improvement of 41% in exabytes shipments. Average mass capacity per drive improved sequentially to 10 TB from 9.6 TB.

In the nearline market, the company shipped 111 exabytes of HDD, up 56% year over year and 4% sequentially.

The company shipped 26.1 exabytes for the Legacy market (includes mission-critical, notebook, desktop, gaming consoles, digital video recorders or DVR and external consumer devices), down 18% in exabyte shipments. Average capacity rose to 2.0 TB from 1.8TB reported in the prior-year quarter.

Revenues by Product Group

Total HDD revenues (90.6% of revenues) increased 16% year over year to $2.822 billion in the reported quarter. On a sequential basis, revenues were down 1%. Revenues from mass capacity storage soared 25% year over year and moved up 1% quarter over quarter to $2 billion.

Driven by strong SSD sales, Non-HDD segment revenues (9.4%), including enterprise data solutions, cloud systems and SSDs, were $294 million. This figure increased 17% sequentially and surged 48% year over year.

Margin Details

Non-GAAP gross margin expanded 390 basis points (bps) on a year-over-year basis to 30.7%. The transition to higher capacity drives and cost-optimized products offset the negative impact from increasing freight and logistics expenses and a less favorable product mix, added Seagate.

Non-GAAP operating expenses were up 6% on a year-over-year basis to $337 million.

Non-GAAP income from operations totaled $621 million, up 61.3% from the year-ago quarter’s figure. Non-GAAP operating margin expanded 520 bps from the prior-year quarter’s reported figure to 19.9%.

Balance Sheet and Cash Flow

As of Dec 31, 2021, cash and cash equivalents were $1.535 million compared with $991 billion as of Oct 1, 2021.

As of Dec 31, 2021, long-term debt (including the current portion) was $5.861 billion compared with $5.136 billion as of Oct 1, 2021.

Cash flow from operations was $521 million compared with $496 million reported in the previous quarter.

Free cash flow in the reported quarter amounted to $426 million compared with $379 million in the previous quarter.

In the fiscal second quarter, the company repurchased 5.1 million shares worth $471 million and paid out cash dividends worth $151 million.


Management anticipates third-quarter fiscal 2022 revenues of 2.9 billion (+/- 150 million).  Non-GAAP EPS for the fiscal third quarter is expected to be $2.00 per share (+/- 20 cents).

Despite a seasonal slowdown in the VIA market in the fiscal third quarter, management expects revenues to be up on a year-over-year basis. The company expects supply chain disruptions to continue at least in fiscal 2022.

Driven by higher demand for mass capacity solutions portfolio and a robust pipeline, Seagate expects fiscal 2022 revenue growth between 12% and 14% compared with the earlier guidance of low double-digit range revenue growth.

How Have Estimates Been Moving Since Then?

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

VGM Scores

Currently, Seagate has a great Growth Score of A, though it is lagging a bit on the Momentum Score front with a B. Following the exact same course, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.


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

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