A month has gone by since the last earnings report for Seagate (STX Quick QuoteSTX - Free Report) . Shares have lost about 5.3% in that time frame, underperforming 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 the most recent earnings report in order to get a better handle on the important catalysts.

Seagate's Q1 Earnings Beat Estimates

Seagate reported first-quarter fiscal 2025 non-GAAP earnings of $1.58 per share, beating the Zacks Consensus Estimate by 6.8% and coming toward the high end of management’s guidance of $1.40 per share (+/- 20 cents). The company reported a non-GAAP loss of 22 cents per share in the year-ago quarter. This improvement in the bottom line was driven by a favorable mix shift to mass-capacity products and a better pricing environment.

Non-GAAP revenues of $2.168 billion beat the Zacks Consensus Estimate by 2.4%. The figure increased 49% on a year-over-year basis and 15% sequentially. Management projected revenues to be $2.1 billion (+/- $150 million) for the fiscal first quarter. Revenue performance gained from continued momentum in cloud demand along with improving enterprise and OEM markets.

Higher mass capacity revenues were driven by stronger nearline cloud demand and increasing nearline enterprise sales. Mass capacity revenues surged 70% year over year to $1.733 billion. Its exabyte shipments now represent more than 93% of total HDD exabyte shipments. 

Nearline cloud demand was mainly driven by cloud service providers (“CSPs”) across the United States. The company added that it has been witnessing positive demand trends globally. Management anticipates continued improvement in the fiscal second quarter owing to shipments for the latest high-capacity products expanded across global CSP and enterprise customers.

Exabyte Shipments in Detail

In the reported quarter, Seagate shipped 137.5 exabytes of HDD storage, up 54% year over year and 20% sequentially. Our estimate was pegged at 124.9 exabytes of HDD storage.

Average mass capacity increased 43% year over year and 15% sequentially to 10.6 TB.

The company shipped 128 exabytes for the mass-capacity storage market (including nearline, video and image applications, and network-attached storage). This recorded a year-over-year increase of 62% in exabyte shipments and 23% sequentially. Our estimate was pegged at 114.8 exabytes of mass-capacity storage. 

Average mass capacity per drive increased sequentially to 14.3 TB from 12.6 TB.

In the nearline market, it shipped 109.1 exabytes of HDD, up 95% year over year and 29% sequentially.

Seagate shipped 9.6 exabytes for the legacy market (which includes mission-critical notebooks, desktops, gaming consoles, digital video recorders or DVR and external consumer devices), down 8% year over year and 7% sequentially. Average capacity increased 1% year over year to 2.4 TB.

Revenues by Product Group

Total HDD revenues (92.4% of total revenues) rose 55% year over year to $2.004 billion in the reported quarter. On a sequential basis, revenues were up 16%.

Systems, SSD & Other segment’s revenues (7.6%), including enterprise data solutions, cloud systems and solid-state drives, were $164 million, up 3% on a year-over-year basis and sequentially.

Our estimates for revenues from HDD and non-HDD segments were $1.932 billion and $169.1 million, respectively.

Margin Details

Non-GAAP gross margin increased to 33.3% from 19.8% in the prior year quarter. This expansion was driven by price adjustment, cost discipline and a favorable product mix shift to mass-capacity products. 

Non-GAAP operating expenses were up 13% on a year-over-year basis to $281 million, primarily due to higher variable compensation.

Non-GAAP income from operations totaled $442 million, up from $40 million a year ago. Non-GAAP operating margin increased to 20.4% from 2.8% in the year-earlier quarter.

Balance Sheet and Cash Flow

As of Sept. 27, 2024, cash and cash equivalents were $1.239 billion compared with 1.358 billion as of June 28.

As of Sept. 27, 2024, long-term debt (including the current portion) was $5.676 billion compared with $5.674 billion as of June 28.

Cash flow from operations was $95 million compared with $434 million in the previous quarter. Free cash flow amounted to $27 million compared with $380 million in the prior quarter. The free cash flow numbers reflect efforts to normalize working capital to support the supply chain and meet the increasing mass capacity demand. The company noted that working capital will take a couple of more quarters to fully adjust, which will affect free cash flow generation to some extent. 

Seagate paid $147 million as dividends in the fiscal first quarter. It exited the quarter with 211 million shares outstanding.

Outlook

Management anticipates second-quarter fiscal 2025 revenues to be $2.3 billion (+/- $150 million). The company expects continued improvements in mass capacity, owing to strengthening nearline demand from global cloud customers and improvement in the enterprise & OEM markets. The increase in mass capacity revenues is likely to offset lower revenues from legacy and other markets. For VIA, management anticipates sales in the fiscal second quarter to be similar to the first quarter.

Margin performance is expected to benefit from a higher mix of mass capacity revenues and ongoing pricing actions.

Non-GAAP earnings are expected to be $1.85 per share (+/- 20 cents).

The non-GAAP operating expenses are expected to be $285 million. At the midpoint of the revenue guidance, management expects the non-GAAP operating margin to grow in the low-20s percentage range of revenues. 

The company expects fiscal 2025 capex to be at or below the low end of its long-term target range of 4-6% of revenues.

How Have Estimates Been Moving Since Then?

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

VGM Scores

At this time, 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 second quintile 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

Seagate has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.