Cree Inc. (CREE) Beats Earnings & Revenue Estimates in Q2

Cree Inc. CREE reported decent second-quarter fiscal 2017 results, beating both earnings and revenue estimates.

While earnings of 9 cents beat the Zacks Consensus Estimate by a penny, revenues of $346.3 million came ahead of the consensus mark of $325 million. However, revenues and earnings decreased 12% and 50%, respectively, on a year-over-year basis.

Cree, Inc. Price, Consensus and EPS Surprise

Cree, Inc. Price, Consensus and EPS Surprise | Cree, Inc. Quote

Quarter Details

Cree has two reportable segments - Lighting Products (primarily consisting of LED lighting systems and bulbs) and LED Products (includes LED chips and LED components).

Lighting Products generated revenues to the tune of $208.3 million, which accounted for 60.1% of total revenue and was down 18.3% on a year-over-year basis.

On the other hand, LED Products generated revenues of $138.0 million, which accounted for 39.9% of total revenue and was down 0.5% on a year-over-year basis.

Non-GAAP gross margin was 32.8%, which contracted roughly 30 basis points (bps) on a year-over-year basis.

Operating expense decreased 5.3% on a year-over-year basis to $102.2 million.

Non-GAAP operating income was $25.3 million compared with a profit of $25.0 million in the year-ago quarter.

Wolfspeed - Ford Motor Collaboration

Cree owned Wolfspeed recently collaborated with Ford Motor F to develop modules that could boost the efficiency of electric vehicles by up to 10%. Although Ford has remained the primary research partner for the project, the technology has been tested by other automobile manufacturers. This indicates a growing interest for Wolfspeed's technology, which augurs well for Cree in the long run. (Read More: Cree's Unit & Ford to Boost Efficiency of Electric Vehicles ).

Settlement of Patent Dispute with Feit

Notably, last month Cree settled a patent dispute with Feit Electric Company over royalties. As per the terms of the settlement, Feit will have to pay the license issue fee to Cree. Moreover, the license for the Feit filament panel patents was also won by Cree, which is a positive for the company.

Balance Sheet

Cree exited fiscal second-quarter 2017 with cash, cash equivalents and short-term investments of $591 million that decreased 2.3% on a year-over-year basis. Inventories were $281.7 million, flat sequentially.


For the third quarter of fiscal 2017, management expects revenues from continuing operations to be in the range $285 million to $315 million.

Non-GAAP net income is estimated to be in a range of $1 million to $9 million, which translates to earnings of penny to 9 cents per share. This excludes $23 million of expenses related to stock-based compensation, impairment or amortization of acquisition-related intangibles as well as transaction costs related to the sale of the Wolfspeed business.

Stock Performance Overview

Shares of Cree have underperformed the broader Zacks Semiconductor Discretes industry over the last one year. While the industry gained 17.8%, Cree declined 1.1% over the same time frame.

The underperformance of the stock could be attributed to the Feit patent dispute that the company settled recently as well as a competitive landscape in the LED lighting space.

Zacks Rank

Cree has Zacks Rank #3 (Hold).

Some better-ranked stocks in the broader technology space are Seagate Technology plc STX and Applied Optoelectronics, Inc. AAOI , both sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today's Zacks #1 Rank stocks here.

Notably, the consensus estimate for Seagate's current year has improved to $3.80 from $3.78 over the last 60 days.

Similarly, the consensus estimate for Applied Optoelectronics' current year has improved to 94 cents from 80 cents over the last 60 days.

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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 Nasdaq, Inc.

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

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