Why Intel Stock Dropped After Its Earnings Beat

What happened

Semiconductor giant Intel (NASDAQ: INTC) beat on earnings last night, reporting $1.39 per share in pro forma profit on $19.7 billion in revenue, easily surpassing analyst projections for $1.15 per share in profits and $17.9 billion in sales.

But Intel stock is down today, falling 6.7% as of 10 a.m. EDT. Why is that?

The word

Image source: Getty Images.

So what

Well, for one thing, although Intel "beat estimates" in the first quarter of 2021, its numbers still weren't great. Revenue declined 1% year over year, and while pro forma profit was $1.39 per share, when calculated according to generally accepted accounting principles (GAAP), Intel's profit was only $0.82 per share, down 37% from last year's Q1.

Gross profit margin declined 540 basis points to 55.2% as Intel lost sales to data centers and replaced them with lower-margin PC sales. Research and development spending increased, resulting in operating profit margins getting cut nearly in half to 18.8%.

Now what

Worse than that, Intel kind of took the wind out of its own sales by pairing news of an earnings beat in Q1 with an earnings warning for the second quarter and beyond. Management forecast that in Q2, sales will decline to about $18.9 billion, which is below Wall Street's estimates. Earnings guidance for $1.05 per share likewise looks likely to fall short of the Street's projected $1.09 per share.

Similarly for the full year, Intel projected revenue will not exceed $77 billion, which appears to be slightly less than analysts were looking for. Pro forma profits might eke out a win if they reach Intel's projected $4.60 per share. (Wall Street forecasts only $4.58.) But GAAP profits will once again fall short of that number, with Intel promising only $4 per share.

Long story short, an earnings beat paired with an earnings warning is not the right way to make a stock go up -- and Intel shares are suffering for it.

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Rich Smith has no position in any of the stocks mentioned. The Motley Fool recommends Intel and recommends the following options: long January 2023 $57.5 calls on Intel and short January 2023 $57.5 puts on Intel. The Motley Fool has a disclosure policy.

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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