Seagate's Q4 Earnings In Line, Revenues Miss, Shares Fall - Analyst Blog

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Shares of Seagate Technology plc ( STX ) went down 1.7% in after-hours trading following its tepid fiscal fourth-quarter 2014 results.

Though Seagate's non-GAAP earnings per share (excluding the impact of tax benefits, amortization of intangibles, restructuring charges and other one-time item) of $1.10 came in line with the Zacks Consensus Estimate, it decreased 8.9% on a year-over-year basis.

Quarter Details

Seagate reported revenues of $3.30 billion, down 3.6% from the year-ago period. Reported revenues also missed the Zacks Consensus Estimate of $3.31 billion.

During the quarter, Seagate shipped 52.5 million units compared with 55.2 million in the previous quarter and 53.9 million in the year-ago quarter. Average selling price for the quarter stood at $60.0, down from $63.0 in the year-ago quarter and $61.0 in the previous quarter.

Seagate's market share in the total addressable market was approximately 39.0%, down from 40.0% reported both in the previous quarter as well as in the year-ago quarter. Nonetheless, Seagate's ClusterStor business increased more than 210.0% during the quarter.

During the quarter, Seagate completed the acquisition of Xyratex Ltd for $374.0 million. Moreover, in a bid to strengthen its flash storage capabilities, Seagate also agreed to pay $450.0 million to acquire the Accelerated Solutions Division (ASD) and Flash Components Division (FCD) from Avago Technologies ( AVGO ). The acquisition makes sense for Seagate as PCIe-based SSDs are in demand from enterprises dealing in online transaction processing and data warehousing.

Seagate's non-GAAP gross profit decreased 1.9% from the year-ago quarter to $939.0 million, primarily due to lower revenue base. However, non-GAAP gross margins expanded 48 basis points (bps) on a year-over-year basis to 28.4%.  Operating margins for the company contracted 139 bps from the year-ago quarter to 13.0%, primarily due to a year-over-year increase in operating expenses as a percentage of revenues (up 187 bps).


Seagate Technology Llc - Quarterly EPS (BNRI) | FindTheBest



Seagate reported non-GAAP net income (excluding the impact of tax benefits, amortization of intangibles, restructuring charges and other one-time item) of $370.0 million or $1.10 per share compared with $447.0 million or $1.20 per share reported in the year-ago quarter.

Seagate exited the quarter with cash and cash equivalents of $2.63 billion versus $2.26 billion in the previous quarter. Seagate's long-term debt (including the current portion) stood at $3.92 billion.

Seagate generated $577.0 million from operating activities compared with $443.0 million in the previous quarter. The company generated free cash flow of $446.0 million. The company paid dividends worth $140.0 million and repurchased shares worth $26.0 million.

Outlook

Seagate expects revenues of approximately $3.55 billion for the first quarter of 2015. Product gross margins are expected to be relatively flat owing to the acquisition of Avago's flash technology and the Xyratex acquisition. Moreover, management expects operating expenses to be $550.0 million in the first quarter of 2015.

The company expects prices to remain stable at current levels. Moreover, Seagate expects its total addressable market for the forthcoming quarter to be in the range of 142.0 million to 146.0 million buoyed by the product refreshes, growth in the notebook and cloud market.

Our Take

Seagate reported tepid fourth-quarter results wherein the bottom line matched the Zacks Consensus Estimate but the top line missed the same.

The increase in investments to provide new and innovative products, sluggish macroeconomic conditions and a flattish price environment prompted the company to provide a modest guidance. Despite the company's efforts to manage costs, margin contraction remains a headwind.

Nonetheless, the company is gaining traction with its new products focused on surveillance and analytics market, and other hybrid drives remain a positive. Moreover, Seagate's cloud-based applications have received ample customer interest.

Additionally, synergies from acquisitions and product innovations continue to drive growth. The company's significant exposure to high-end corporate desktop and enterprise server markets also remains a positive. Nonetheless, competition from Western Digital Corp. ( WDC ) and SanDisk Corp. ( SNDK ) is a concern, going forward.

Currently, Seagate has a Zacks Rank #3 (Hold).


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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Business , Earnings , Stocks

Referenced Stocks: WDC , STX , SNDK , AVGO

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