A month has gone by since the last earnings report for Seagate (STX Quick QuoteSTX - Free Report) . Shares have added about 4.3% in that time frame, outperforming 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 catalysts.

Seagate Q3 Earnings Miss Estimates

Seagate reported third-quarter fiscal 2022 non-GAAP earnings of $1.81 per share, missing the Zacks Consensus Estimate by 3.2%. The bottom line increased 22% from the year-ago quarter’s figure but declined 25% sequentially.

Management had anticipated non-GAAP earnings per share (EPS) for the fiscal third quarter to be $2.00 per share (+/- 20 cents).

Non-GAAP revenues of $2.802 billion outpaced the Zacks Consensus Estimate by 0.9%. The figure increased 3% on a year-over-year basis but declined 10% sequentially. Management had projected revenues of 2.9 billion (+/- 150 million) for the fiscal third quarter.

Healthy demand for its mass capacity storage solutions, especially nearline products from cloud data center customers, boosted the top line. Nearline revenue surged 24% year over year owing to strong uptake of 18 terabyte (TB) drives and initial shipments of 20 TB drives.

Various macro-related headwinds, including COVID lockdowns, negatively impacted the performance of various end-markets like the video and image applications market, noted Seagate.

Exabyte Shipments in Detail

During the reported quarter, Seagate shipped 154.2 exabytes of hard disk drive (“HDD”) storage, with an average capacity of record 6.7 terabytes (TB) per drive. This marked a year-over-year improvement of 10% and a sequential decline of 6% in total HDD exabytes shipments.

Average mass capacity improved to 6.7 TB from 5.1 TB (up 32%) reported in the year-ago quarter and increased from 6.1 TB (up 10%) reported in the previous quarter.

The company shipped 132.7 exabytes for the mass capacity storage market (includes nearline and video and image applications and network-attached storage or NAS). This marked a sequential decline of 3% but a year-over-year improvement of 20% in exabytes shipments. Average mass capacity per drive improved sequentially to 10.9 TB from 10 TB.

In the nearline market, the company shipped 117.5 exabytes of HDD, up 23% year over year and 6% sequentially.

The company shipped 21.5 exabytes for the Legacy market (includes mission-critical, notebook, desktop, gaming consoles, digital video recorders or DVR and external consumer devices), down 26% year over year 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 (91.5% of revenues) increased 3% year over year to $2.565 billion in the reported quarter. On a sequential basis, revenues were down 9%. Revenues from mass capacity storage soared 18.8% year over year but fell 5% quarter over quarter to $1.9 billion.

Non-HDD segment revenues (8.5%), including enterprise data solutions, cloud systems and SSDs, were $237 million. This figure declined 19% sequentially but was unchanged on a year-over-year basis.

Margin Details

Non-GAAP gross margin expanded 180 basis points (bps) on a year-over-year basis to 29.2%.

Non-GAAP operating expenses were up 5% on a year-over-year basis to $345 million.

Non-GAAP income from operations totaled $472 million, up 12.4% from the year-ago quarter’s figure. Non-GAAP operating margin expanded 140 bps from the prior-year quarter’s reported figure to 16.8%.

Balance Sheet and Cash Flow

As of Apr 1, 2022, cash and cash equivalents were $1.138 million compared with $1.535 billion as of Dec 31, 2021.

As of Apr 1, 2022, long-term debt (including the current portion) was $5.644 billion compared with $5.861 billion as of Dec 31, 2021. The company repaid $220 million worth of senior notes in the quarter.

Cash flow from operations was $460 million compared with $521 million reported in the previous quarter.

Free cash flow in the reported quarter amounted to $363 million compared with $426 million in the previous quarter.

In the fiscal third quarter, the company repurchased 4.2 million shares worth $417 million and paid out cash dividends worth $154 million.

Guidance

Management anticipates fourth-quarter fiscal 2022 revenues of 2.8 billion (+/- 150 million).

Non-GAAP EPS for the fiscal fourth quarter is expected to be $1.90 per share (+/- 20 cents).

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended downward during the past month.

The consensus estimate has shifted -8.39% 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 an F. However, 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 B. 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. Notably, Seagate has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.