) reported second-quarter fiscal 2014 earnings per share of 34
cents, which surpassed the Zacks Consensus Estimate by 3
The company reported revenues of $415.1 million, up 6.2%
sequentially and 19.9% year over year, which was also above the
mid-point of management's guidance of $400.0 million to $420.0
million. The increase was due to strong sales of LED (light
emitting diode) fixtures and LED bulbs.
Revenues by Product Line Segments
segment comprised 52% of Cree's sales in the last quarter, up 7%
from the year-ago quarter to $215.0 million. This segment
includes LED chips, LED components and SiC materials.
segment generated 42% of sales, up 42.0% from the year-ago
quarter to $173.7 million attributable to strong sales of LED
fixtures and lighting products. This segment includes both LED
and traditional lighting systems, but focuses primarily on LED
Cree's Power and RF Products
segment generated the remaining 6% of sales, up 17.0% from the
year-ago quarter to $26.4 million. This segment includes power
devices and RF devices.
Reported gross margin for the quarter was 37.5%, down 110
basis points (bps) sequentially and 100 bps year over year. The
sequential decrease was due to an unfavorable product mix.
Total operating expenses of $120.4 million were up 11.1% from
$108.4 million in the year-ago quarter. The reported operating
margin was 8.5%, up 130 bps from 7.2% in the year-ago quarter.
Both research & development and selling, general &
administrative expenses decreased as a percentage of sales.
The quarter's GAAP net income was $35.7 million or earnings
per share of 29 cents compared with $20.4 million or 18 cents in
the comparable quarter last year. Excluding special items but
including stock-based compensation expenses, adjusted net income
was $42.4 million or earnings per share of 34 cents compared with
$26.1 million or 22 cents a share in the year-ago quarter.
The company ended the second quarter with cash, cash
equivalents and short-term investments balance of $1.18 billion,
up from $1.09 billion in the prior quarter. Trade receivables
were $213.5 million, up from $209.3 million in the prior
Cash flow from operations was $98.8 million, up from $69.2
million in the prior quarter. Capex was $55.0 million versus
$38.4 million in the prior quarter. Free cash flow was $43.7
million versus $30.8 million in the prior quarter.
For fiscal third-quarter 2014, Cree expects total revenue in
the range of $390 million-$420 million, representing a sequential
decrease of 2.4% at the mid-point.
GAAP gross margin is likely to be approximately 37.7%, whereas
non-GAAP gross margin is likely to be around 38.5%. Operating
expenses are expected to be flat sequentially and the tax rate is
likely to be 21.0%.
GAAP earnings per share are expected in the range of 19 cents
to 26 cents, while non-GAAP earnings per share are likely to be
in the range of 34 cents to 41 cents.
LED manufacturer Cree's top-line numbers for the quarter
surpassed our expectations.
The company's focus on product innovation to drive growth is
quite encouraging. In the quarter, Cree ramped up its LEDway HO
series and implemented a series of cost reduction measures to
improve its margin profile.
Though management gave a weak third-quarter revenue guidance
due to expectations of lower LED bulb sales for channel partner,
it expects better gross margin in the near term led by
improvements across product lines due to cost reductions and
lower cost of new product designs.
We believe that the increasing use of LED technology, its
penetration into the domestic market and global push toward
energy conservation will increase sales of Cree LED bulbs,
helping revenue growth in the near future.
Currently, Cree has a Zacks Rank #3 (Hold). Other stocks that
are performing well at current levels include
Waddell & Reed Financial, Inc.
Western Digital Corporation
). All these stocks carry a Zacks Rank #2 (Buy).
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