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Seagate (STX) Beats Q4 Earnings & Revenues but Down Y/Y
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Seagate Technology plc (STX - Free Report) reported better-than-expected results for the fourth quarter of fiscal 2016 wherein both the top and bottom line surpassed the respective Zacks Consensus Estimate. However, on a year-over-year basis, both revenues and earnings witnessed a decline.
Seagate reported non-GAAP earnings per share (excluding the impact of tax benefits, amortization of intangibles, restructuring charges and other one-time items) of 69 cents, which surpassed the Zacks Consensus Estimate of 60 cents. However, non-GAAP earnings were down from 77 cents reported in the year-ago quarter.
On a GAAP basis, the company posted earnings of 23 cents per share, up from 43 cents earned in the prior-year period. The year-over-year earnings decline was mainly due to lower revenues.
Quarter Details
Seagate reported revenues of $2.654 billion, down 9.3% year over year from $2.927 billion. Nevertheless, revenues surpassed the Zacks Consensus Estimate of $2.593 billion.
Seagate’s non-GAAP gross profit fell 13.8% year over year to $685 million, mainly due to a lower revenue base. Moreover, gross margin contracted 140 basis points (bps) to 25.8%.
Non-GAAP operating income came in at $242 million, compared with $280 million reported a year ago. Operating margin contracted 50 bps to 9.1% primarily due to lower gross margin, which was partially offset by lower operating expenses as a percentage of sales.
Seagate posted non-GAAP net income (excluding the impact of tax benefits, amortization of intangibles, restructuring charges, gain on arbitration award and other one-time items) of $209 million or 69 cents per share, compared with the fourth-quarter fiscal 2015 tally of $250 million or 77 cents.
Seagate exited the quarter with cash and cash equivalents of $1.13 billion, compared with $1.19 billion in the previous quarter. Long-term debt was $4.13 billion.
During fiscal 2016, Seagate generated $1.680 billion from operating activities. The company paid $727 million as dividends and repurchased shares worth $1.090 billion during the fiscal year.
Concurrent with its fourth-quarter earnings release, the company declared a cash dividend of 63 cents per share, payable on Oct 5 to shareholders of record as of Sep 21.
Seagate’s results for the fourth quarter of fiscal 2016 were better than our expectations. However, on a year-over-year basis, revenues as well as earnings recorded a significant decline.
Notably, during the announcement of its fourth-quarter preliminary results on Jul 12, Seagate had revealed expectations of higher revenues and margins in the quarter on the back of rising demand for the company’s HDD products and cost cutting initiatives.
Moreover, the company was anticipating unit shipments in the quarter of roughly 37 million, translating to a total average capacity per drive of 1.7 terabytes and average selling price (ASP) of $67.00 per unit.
According to Steve Luczo, Chairman and Chief Executive Officer of Seagate, “We believe the long-term trend of exabyte storage demand growth exceeding HDD areal density growth remains intact for the foreseeable future. Seagate will continue to evolve its product offering, technology investment and manufacturing footprint to best serve our customers with the world’s most advanced and cost advantaged HDD products."
In our opinion, Seagate will benefit from the strength in its hybrid drives. Also, the company is focusing on the enterprise side, where it could acquire higher-margin businesses. Synergies from acquisitions and product innovations will continue to drive growth.
However, sluggish macroeconomic conditions, a flattish price environment and competition from Western Digital Corp. (WDC - Free Report) remain the near-term headwinds. Furthermore, continued cannibalization of PCs by mobile devices could dent its future performance.
Currently, Seagate has a Zacks Rank #2 (Buy). A couple of other stocks worth considering in the broader technology sector are Adobe Systems Inc. (ADBE - Free Report) and Synopsys Inc. (SNPS - Free Report) , both sporting a Zacks Rank #1 (Strong Buy).
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Seagate (STX) Beats Q4 Earnings & Revenues but Down Y/Y
Seagate Technology plc (STX - Free Report) reported better-than-expected results for the fourth quarter of fiscal 2016 wherein both the top and bottom line surpassed the respective Zacks Consensus Estimate. However, on a year-over-year basis, both revenues and earnings witnessed a decline.
Seagate reported non-GAAP earnings per share (excluding the impact of tax benefits, amortization of intangibles, restructuring charges and other one-time items) of 69 cents, which surpassed the Zacks Consensus Estimate of 60 cents. However, non-GAAP earnings were down from 77 cents reported in the year-ago quarter.
On a GAAP basis, the company posted earnings of 23 cents per share, up from 43 cents earned in the prior-year period. The year-over-year earnings decline was mainly due to lower revenues.
Quarter Details
Seagate reported revenues of $2.654 billion, down 9.3% year over year from $2.927 billion. Nevertheless, revenues surpassed the Zacks Consensus Estimate of $2.593 billion.
Seagate’s non-GAAP gross profit fell 13.8% year over year to $685 million, mainly due to a lower revenue base. Moreover, gross margin contracted 140 basis points (bps) to 25.8%.
Non-GAAP operating income came in at $242 million, compared with $280 million reported a year ago. Operating margin contracted 50 bps to 9.1% primarily due to lower gross margin, which was partially offset by lower operating expenses as a percentage of sales.
Seagate posted non-GAAP net income (excluding the impact of tax benefits, amortization of intangibles, restructuring charges, gain on arbitration award and other one-time items) of $209 million or 69 cents per share, compared with the fourth-quarter fiscal 2015 tally of $250 million or 77 cents.
Seagate exited the quarter with cash and cash equivalents of $1.13 billion, compared with $1.19 billion in the previous quarter. Long-term debt was $4.13 billion.
During fiscal 2016, Seagate generated $1.680 billion from operating activities. The company paid $727 million as dividends and repurchased shares worth $1.090 billion during the fiscal year.
Concurrent with its fourth-quarter earnings release, the company declared a cash dividend of 63 cents per share, payable on Oct 5 to shareholders of record as of Sep 21.
SEAGATE TECH Price, Consensus and EPS Surprise
SEAGATE TECH Price, Consensus and EPS Surprise | SEAGATE TECH Quote
Our Take
Seagate’s results for the fourth quarter of fiscal 2016 were better than our expectations. However, on a year-over-year basis, revenues as well as earnings recorded a significant decline.
Notably, during the announcement of its fourth-quarter preliminary results on Jul 12, Seagate had revealed expectations of higher revenues and margins in the quarter on the back of rising demand for the company’s HDD products and cost cutting initiatives.
Moreover, the company was anticipating unit shipments in the quarter of roughly 37 million, translating to a total average capacity per drive of 1.7 terabytes and average selling price (ASP) of $67.00 per unit.
According to Steve Luczo, Chairman and Chief Executive Officer of Seagate, “We believe the long-term trend of exabyte storage demand growth exceeding HDD areal density growth remains intact for the foreseeable future. Seagate will continue to evolve its product offering, technology investment and manufacturing footprint to best serve our customers with the world’s most advanced and cost advantaged HDD products."
In our opinion, Seagate will benefit from the strength in its hybrid drives. Also, the company is focusing on the enterprise side, where it could acquire higher-margin businesses. Synergies from acquisitions and product innovations will continue to drive growth.
However, sluggish macroeconomic conditions, a flattish price environment and competition from Western Digital Corp. (WDC - Free Report) remain the near-term headwinds. Furthermore, continued cannibalization of PCs by mobile devices could dent its future performance.
Currently, Seagate has a Zacks Rank #2 (Buy). A couple of other stocks worth considering in the broader technology sector are Adobe Systems Inc. (ADBE - Free Report) and Synopsys Inc. (SNPS - Free Report) , both sporting a Zacks Rank #1 (Strong Buy).
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>