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Why Is Finisar (FNSR) Down 3.1% Since Last Earnings Report?

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A month has gone by since the last earnings report for Finisar (FNSR - Free Report) . Shares have lost about 3.1% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Finisar 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 drivers.

Finisar Surpasses Q1 Earnings and Revenue Estimates

Finisar reported healthy first-quarter fiscal 2019 results (ended Jul 29, 2018), wherein both the top line and the bottom line beat the respective Zacks Consensus Estimate.

Net Loss

On a GAAP basis, net loss for the reported quarter was $18.5 million or loss of 16 cents per share against net income of $19.9 million or 17 cents per share in the year-ago quarter. This was primarily due to lower revenues and higher total operating expenses.

Excluding non-recurring items, non-GAAP net income declined to $21.3 million or 18 cents per share from $45.8 million or 40 cents per share in the prior-year quarter. Non-GAAP earnings per share, however, beat the Zacks Consensus Estimate by 6 cents.    

Revenues

Quarterly overall revenues decreased 7.2% year over year to $317.3 million primarily due to lower datacom revenues. The top line, however, surpassed the Zacks Consensus Estimate of $316 million.

Revenues from datacom and sensing products were $238.1 million, witnessing lower demand for 40-gig transceivers. Sales of telecom products were $78.2 million, recording a rise in demand for wavelength selective switches driven by carrier deployments in India and China.

Other Quarter Details

Cost of revenues was $236.2 million compared with $225.9 million in the year-ago quarter. In the fiscal first quarter, gross profit was $80.7 million compared with $115.3 million in the year-ago quarter with margin of 25.4% and 33.7%, respectively. Finisar reported an operating loss of $15.7 million against an income of $29.9 million in the prior-year quarter.

In the fiscal first quarter, the company’s capital expenditures were approximately $112.7 million of which approximately $4 million was related to the construction of the third building of Wuxi manufacturing site and approximately $97 million related to the uplift of the building in Sherman, TX and delivery of capital equipment for that site.

Liquidity

As of Jul 29, 2018, Finisar had $326.2 million of cash and cash equivalents with $505.7 million of total long-term liabilities.

Fiscal Q2 Outlook

Finisar expects revenues between $315 million and $335 million in the second quarter of fiscal 2019. It anticipates non-GAAP gross margin to be approximately 28% and non-GAAP operating margin to be around 7-8%. Non-GAAP earnings per share are expected to be in the range of approximately 19-25 cents.

For the fiscal second quarter, for the Sherman facility, the company expects approximately $35 million in capital expenditures for the uplift of the building and additional equipment. It also expects an additional $28 million in other capital expenditures, including $3 million related to the construction and fit out of the third Wuxi building.

How Have Estimates Been Moving Since Then?

Fresh estimates followed an upward path over the past two months. The consensus estimate has shifted 30.95% due to these changes.

VGM Scores

Currently, Finisar 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 C on the value side, putting it in the middle 20% for this investment strategy.

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

Outlook

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




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