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Seagate (STX) Q4 Earnings & Revenues Lag Estimates, Stock Down

Seagate STX reported fourth-quarter fiscal 2020 non-GAAP earnings of $1.20 per share, which missed the Zacks Consensus Estimate by 6.3%. However, the figure surged 26% from the year-ago quarter.

Non-GAAP revenues of $2.517 billion lagged the Zacks Consensus Estimate by 3.4%. However, the figure improved 6% from the year-ago quarter.

Shares Down on Bleak Q1 Guidance

Following dismal fourth-quarter fiscal 2020 results and bleak first-quarter fiscal 2021 guidance, shares of Seagate were down more than 10% in the pre-market trading on Jul 29.

Management anticipates first-quarter fiscal 2021 revenues of 2.3 billion (+/- 200 million). The Zacks Consensus Estimate for revenues is pegged at $2.66 billion, which indicates year-over-year growth of 3.2%

Non-GAAP earnings per share for fiscal first quarter is expected to be 85 cents (+/- 15 cents). The Zacks Consensus Estimate for earnings stands at $1.34 per share, suggesting growth of 30.1% from the year-ago reported figure.



Notably, the company’s stock has declined 26.3% year to date, compared with the industry’s decline of 24.6%.

Exabyte Shipments in Detail

During the reported quarter, Seagate shipped 117 exabytes of hard disk drive (HDD) storage, with an average capacity of record 4.5 terabytes (TB) per drive. This marked year-over-year improvement of 38.5% in the total HDD exabytes shipments. Sequentially, the figure declined 2.7%. Notably, average capacity improved from 4.1 TB and 2.7 TB reported in the prior quarter and the year-ago quarter, respectively.

The company shipped 90.5 exabytes for the mass capacity storage market (includes nearline and video and image applications, and network-attached storage or NAS). This marked a sequential decline of 0.7% in exabytes shipments. Average capacity per drive increased sequentially from 8.2 TB to 9.2 TB.

In the nearline market, the company shipped 79.5 exabytes of HDD, up 4.1% sequentially and with an average capacity of 10.8 terabytes. This was driven by robust demand for the company’s 16 TB capacity products.

The company shipped 26.4 exabytes for the Legacy market (includes mission-critical, notebook, desktop, gaming consoles, digital video recorders or DVR and external consumer devices) with an average capacity of 1.6 TB. This marked a sequential decline of 9.3% in exabytes shipments. Notably, average capacity remained flat sequentially.

This can be attributed to sluggishness in IT spending across small to medium enterprises, weakness across consumer end market, and soft demand for mission critical drives.

Notably, mass capacity and legacy verticals contributed 58% and 34% to total revenues, respectively.

Revenues by Product Group

Total HDD revenues (92% of revenues) increased 5.3% year over year to $2.321 billion in the reported quarter.

Non-HDD segment revenues (8%), which includes enterprise data solutions, cloud systems and SSDs, climbed 16.8% year over year to $195 million.

Margin Details

Non-GAAP gross margin expanded 20 basis points (bps) on a year-over-year basis to 27.3%. This includes an approximate 130 bps impact from higher logistic, underutilization and operational cost-related coronavirus disruption.

Non-GAAP operating expenses were down 5.2% on a year-over-year basis to $313 million.
 

Seagate Technology PLC Price, Consensus and EPS Surprise

Seagate Technology PLC Price, Consensus and EPS Surprise

Seagate Technology PLC price-consensus-eps-surprise-chart | Seagate Technology PLC Quote

Non-GAAP income from operations were $373 million, up 19.6% from the year-ago quarter’s figure. Consequently, non-GAAP operating margin expanded 160 bps from the prior-year quarter’s reported figure to 14.8%.

Balance Sheet and Cash Flow

As of Jul 3, 2020, cash and cash equivalents were $1.72 billion compared with $1.61 billion as of Apr 3, 2020.

As of Jul 3, 2020, long-term debt (including current portion) came in at $4.175 billion, compared with $4.103 billion as of Apr 3, 2020.

Cash flow from operations was $388 million compared with $390 million reported in the previous quarter.

Free cash flow for the reported quarter amounted to $274 million compared with $260 million in the last reported quarter.

In fiscal fourth quarter, the company repurchased 1.1 million shares worth $55 million and paid out dividends worth $168 million.

Notably, Seagate’s board of directors approved a cash dividend of 65 cents per share, payable on Oct 7, to shareholders as on Sep 23.

Guidance

Management anticipates robust demand for the company’s 18-terabyte capacity products to be a key catalyst in the days ahead as production to higher volumes improves.

However, sluggishness in IT spending across small to medium enterprises “over the next couple of quarters,” is likely to dampen demand recovery across the company’s systems solution. Moreover, volatility and business uncertainty in the market remain concerns. The company anticipates cost impact of the pandemic to be higher in couple of quarters ahead.

Zacks Rank & Stocks to Consider

Currently, Seagate carries a Zacks Rank #4 (Sell).

Some better-ranked stocks in the broader technology sector are Fastly, Inc. FSLY, Synaptics Incorporated SYNA and Microchip Technology Incorporated MCHP. While Microchip and Synaptics sport a Zacks Rank #1 (Strong Buy), Fastly carries a Zacks Rank #2 (Buy), at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

While both Fastly & Synaptics are set to report earnings on Aug 5, Microchip is slated to release financial numbers on Aug 4.

Long-term earnings growth rate of Fastly, Microchip and Synaptics is pegged at 25%, 14.5% and 10%, respectively.

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