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Fabrinet (FN) Q2 Earnings Beat Estimates, Revenues Rise Y/Y

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Fabrinet (FN - Free Report) reported second-quarter fiscal 2020 adjusted earnings of $1 per share that beat the Zacks Consensus Estimate by 7.5% and increased 3.1% year over year.

Revenues of $426.2 million beat the consensus mark by 3.1% and increased 5.8% year over year. Strong growth in nearly all areas of the company’s business due to stabilization of end-market demand drove the top line.
 

Fabrinet Price, Consensus and EPS Surprise

 

Fabrinet Price, Consensus and EPS Surprise

Fabrinet price-consensus-eps-surprise-chart | Fabrinet Quote

 

End-Market Details

Optical Communication revenues (75.6% of total revenues) rose 5.4% from the year-ago quarter’s figure to $322.1 million.

Within Optical Communications, telecom revenues amounted to $248 million, up 20% from the year-ago quarter’s levels. The transfer of manufacturing responsibilities for Infinera’s Coriant division products to Fabrinet’s Thailand facility contributed to telecom growth.

Datacom revenues were $74 million, down 25.3% from the year-ago-quarter’s figure but marginally up sequentially. The downside was caused by the stabilization of demand trends for datacom products.

Lasers, Sensors & Other revenues (24.4% to total revenues) rose 6.8% from the year-ago-quarter to $104.1 million. The uptick was driven by strong demand for industrial laser and other non-optical applications.

Notably, revenues from Industrial lasers amounted to $46 million while other non-optical applications revenues were $33 million in fiscal second quarter, sequentially up 12.2% and 20%, respectively.

Currently, Fabrinet has one customer that contributes 10% to revenues. Notably, the company was awarded a new project by Cisco, which will make it the second customer to contribute 10% to revenues if it ramps up successfully.

Operating Details

Non-GAAP Gross profit increased 8.3% year over year to $50.8 million. Moreover, gross margin expanded 30 basis points (bps) year over year to 11.9%.

Selling and administrative expenses (4.2% to revenues) increased 39.1% from the year-ago quarter’s figure to approximately $17.7 million.

Fabrinet reported Non-GAAP operating profit of $38.5 million, up 2.7% year over year. However, operating margin contracted 30 bps on a year-over-year basis to 9%.

Balance Sheet & Cash Flow

As of Dec 27, 2019, Fabrinet had cash & cash, restricted cash and investments worth $450.5 million compared with $436.4 million as of Sep 27, 2019.

Moreover, as of Dec 27, 2019, the company had a long-term debt of $45.6 million compared with $48.6 million as of Sep 27, 2019.

In second-quarter fiscal 2020, Fabrinet generated free cash flow of $40.9 million.

ROIC (Non-GAAP Net Income divided by average invested capital) was 28.7% for second-quarter fiscal 2020 compared with 30.4% in the year-ago reported quarter.

Guidance

For third-quarter fiscal 2020, revenues are projected between $410 million and $418 million. The revenue guidance is moderate due to the Coronavirus outbreak in China.

The Zacks Consensus Estimate is currently pegged at $415.7 million, indicating 4.2% growth from the figure reported in the year-ago quarter.

Additionally, Fabrinet expects Non-GAAP earnings between 92 cents and 95 cents per share.

The consensus mark for earnings is currently pegged at 95 cents, suggesting 3.3% growth from the figure reported in the year-ago quarter.

Zacks Rank & Stocks to Consider

Fabrinet currently carries a Zacks Rank #3 (Hold).

Silicon Motion Technology Corporation (SIMO - Free Report) , Perion Network Ltd. (PERI - Free Report) and CEVA Inc. (CEVA - Free Report) and are some better-ranked stocks in the broader computer and technology sector. All three stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank  stocks here.

Silicon Motion Technology Corporation. Perion, CEVA are set to report quarterly results on Feb 6, 12 and 18, respectively.

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