Seagate Technology plc (STX) reported first-quarter fiscal 2015 non-GAAP earnings per share (excluding the impact of tax benefits, amortization of intangibles, restructuring charges and other one-time item) of $1.34, which came ahead of the Zacks Consensus Estimate of $1.25 per share. Also, earnings increased from $1.29 per share reported in the year-ago quarter.
Quarter Details
Seagate reported revenues of $3.79 billion, up 8.5% from the year-ago period. Reported revenues also beat the Zacks Consensus Estimate of $3.63 billion.
During the quarter, Seagate shipped 59.5 million units compared with 52.5 million in the previous quarter and 55.7 million in the year-ago quarter. Average selling price for the quarter stood at $60.0, flat on a quarterly basis. However, prices were down from $62 in the previous-year quarter.
Seagate’s market share in the total addressable market was approximately 40%, up from 38% reported in the previous quarter but flat on a year-over-year basis.
Seagate’s non-GAAP gross profit increased 6.8% from the year-ago quarter to $1.06 billion, primarily due to higher revenue base. However, non-GAAP gross margins contracted 44 basis points (bps) on a year-over-year basis to 28.1%. Non-GAAP operating margin contracted 153 bps from the year-ago quarter to 13.6%, primarily due to a year-over-year increase in operating expenses as a percentage of revenues (up 109 bps).
Seagate reported non-GAAP net income (excluding the impact of tax benefits, amortization of intangibles, restructuring charges and other one-time items) of $453 million or $1.34 per share compared with $473 million or $1.29 per share reported in the year-ago quarter.
Seagate exited the quarter with cash and cash equivalents of $2.19 billion versus $2.63 billion in the previous quarter. Seagate’s long-term debt stood at $3.81 billion.
Seagate generated $602 million from operating activities compared with $577 million in the previous quarter. The company generated free cash flow of $430 million. The company paid dividends worth $140 million and repurchased shares worth $183 million.
Our Take
Seagate reported better-than-expected first-quarter fiscal 2015 results. Year-over-year comparisons were also favorable. 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 the analytics market, and other hybrid drives, which is a positive. Moreover, Seagate’s cloud-based applications have generated ample customer interest.
Also, Seagate is focusing more on the enterprise side, which is a key growth area in the information technology sector. Anticipating a potential acceleration in cloud deployments (due to exponential growth in data storage in the cloud), Seagate is investing heavily to deliver high-capacity storage devices that would support expansion of cloud infrastructure and cloud applications. We believe that this will boost margins and reduce Seagate’s dependence on the PC market.
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).
Investors can also consider another technology stock, SunEdison, Inc. (SUNE) that has a Zacks Rank #1 (Strong Buy).
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