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NetApp (NTAP) Beats on Q4 Earnings & Revenues, View Strong

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NetApp Inc. (NTAP - Free Report) delivered fiscal fourth-quarter 2018 non-GAAP earnings of 1.05 per share, beating the Zacks Consensus Estimate of $1.01 per share. The figure surged 22.1% on a year-over-year basis and was also above the guided range.

Revenues of $1.64 billion increased 11% from the year-ago quarter, surpassing the Zacks Consensus Estimate of $1.59 billion. The figure was well within the guided range.

The impressive fourth-quarter results were driven by strong product adoption, increasing deal wins, and expanding customer base across varied geographies. Moreover, the company’s transition to data fabric strategy (a software-defined approach to data management) is expanding business opportunities.

Further, the company increased momentum of its HCI and expanded new cloud partnerships, which contributed to overall revenue growth.

NetApp stock has gained 63.1% in the past year, substantially outperforming the 21.9% rally of the industry it belongs to.

Segment Details

Product revenues (62% of total revenues) increased 18.7% year over year to $1.01 billion. This was the sixth consecutive quarter of product revenue growth, driven primarily by the company’s strong strategic product line and a 4.5 point currency benefit.

Strategic solutions comprised 74% of net product revenues. It increased 25% on a year-over-year basis. Mature solutions contributed 26% to total revenues, up 4% year over year.

The combination of Software maintenance revenues, Hardware maintenance and other services revenues of $630 million were flat year over year and was up 4% sequentially. Management pointed higher revenue generation from renewals and growth in product revenues for the increase.

NetApp’s converged infrastructure market witnessed growth of 16% on a year-over-year basis, driven primarily by strong numbers from all–flash FlexPod. The company announced increasing momentum of its HCI solutions, which began shipping in the second quarter.

Management was particularly optimistic about its expanded partnership with Microsoft (MSFT - Free Report) Azure for the development of the industry’s first cloud-based enterprise, Network File System (“NFS”) delivered via Azure. Moreover, it looks to widen its reach with the announcement of NFLEX converged infrastructure with Fujitsu management.

The company is positive about making the most of the exponential rate of data growth with its cloud-integrated all-flash solutions that fit well with hybrid cloud infrastructure. During the fourth quarter, the company’s all-flash array business surged 43% on a year-over-year basis. Its annualized net revenue run rate was $2.4 billion.

The company’s expertise in the flash array market is aiding its popularity in storage area network (SAN) and converged infrastructure markets. The company’s hyper-converged infrastructure is also anticipated to be a positive for the top line in the long run.

Margin Details

Non-GAAP gross margin was 63%, which was above the guided range of 61.5-62.5%. Further, it expanded 50 basis points (bps) from the year-ago quarter on the back of higher product gross margin of 51.5%.

Software maintenance gross margin, Hardware maintenance and other services gross margin were almost flat on a year-over-year basis.

Non-GAAP operating margin contracted 30 bps on a year-over-year basis to 20.4%.

Balance Sheet

NetApp exited the quarter with $5.3.9 billion in cash and short-term investments as compared with previous quarter of $5.6 billion.

The company generated cash from operations of $494 million during the quarter compared with $420 million in the previous quarter. Further, the company repurchased shares worth $344 million and paid $53 million as dividends in the reported quarter.

In the first-quarter of fiscal 2019, NetApp intends to double its quarterly dividend to 40 cents per share, payable on Jul 25, 2018.


For first-quarter fiscal 2019, NetApp expects non-GAAP earnings in the range of 76-82 cents per share. The Zacks Consensus Estimate for the current quarter is pegged at 80 cents.

Net revenues are anticipated to be in the range of $1.365-$1.465 billion, which implies growth of 6.8% at the mid-point from the year-ago quarter. The Zacks Consensus Estimate is pegged at $1.43 billion.

NetApp expects gross margin to be around 64% and operating margin to be approximately 18%.

Management remains hopeful of the momentum of its hybrid cloud business. Its differentiated product portfolio and strong distribution channels will keep demand and adoption of the products strong going ahead.

For fiscal year 2019, net revenues are anticipated to increase in mid-single-digits. The company expects EPS growth rate to be more than 15%.

NetApp expects gross margin to be around 63% and operating margin to be in the range of 20-21%. Effective tax rate is expected to be approximately 18%.

Zacks Rank & Other Stocks to Consider

Currently, NetApp carries a Zacks Rank #2 (Buy).

Other top-ranked stocks in the broader technology sector include NVIDIA Corporation (NVDA - Free Report) and Groupon, Inc. (GRPN - Free Report) , both sporting a Zacks Rank #1 (Strong Buy).  You can see the complete list of today’s Zacks #1 Rank stocks here.

NVIDIA and Groupon have a long-term expected EPS growth rate of 10.3% and 6.5%, respectively.

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