Yahoo Finance Western Digital (WDC) Up 17.5% Since Last Earnings Report: Can It Continue?
A month has gone by since the last earnings report for Western Digital (WDC). Shares have added about 17.5% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Western Digital due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Western Digital Q3 Earnings Beat, Revenues Fall Y/Y
Western Digital reported third-quarter fiscal 2023 non-GAAP loss of $1.37 per share, narrower than the Zacks Consensus Estimate of a loss of $1.55. The company had reported earnings of $1.65 in the prior-year quarter.
The performance was affected by challenging macro environment and underutilization charges which weighed on the margins.
Revenues of $2.803 billion beat the Zacks Consensus Estimate by 1.4%. However, the top line decreased 36% year over year owing to weak performance across all segments. On a sequential basis, revenues declined 10%
Quarter in Detail
Beginning first-quarter fiscal 2022, Western Digital started reporting revenues under three refined end markets — Cloud (includes products for public or private cloud), Client (includes products sold directly to OEMs or through distribution) and Consumer (includes retail and other end-user products).
Revenues from the Cloud end market (43% of total revenues) fell 32% year over year to $1.205 billion owing to lower flash pricing, and lower shipments of both hard drive and flash products. On a sequential basis, cloud revenues were down 2%.
Revenues from the Client end market (35% of total revenues) were down 44% year over year to $975 billion. The downtick was caused by lower flash pricing on a year-over-year basis, coupled with reduced client SSD and hard drive shipments for PC applications. Client revenues declined 10% sequentially.
Revenues from the Consumer end market (22% of total revenues) were down 29% year over year to $623 million. Revenues decreased 22% on a sequential basis. Sequential performance was hurt by seasonal decline in demand for both retail hard drives and flash products.
Considering revenues by product group, Flash revenues (46.6% of total revenues) declined 42% from the year-ago quarter’s figure to $1.307 billion. Sequentially, flash revenues fell 21%. HDD revenues (53.4% of total revenues) decreased 30% year over year to $1.496 billion. Revenues were up 3% quarter over quarter.
Key Metrics
The company shipped 12.6 million HDDs at an average selling price (ASP) of $109. The reported shipments declined 36.4% from the prior-year quarter’s levels.
On a quarter-over-quarter basis, HDD Exabytes sales were up 15%. Flash exabytes sales were down 14%. Total exabytes sales (excluding non-memory products) were up 9% sequentially. ASP/Gigabytes (excluding licensing, royalties, and non-memory products) were down 10% sequentially.
Margins
Non-GAAP gross margin was 10.6% compared with 31.7% reported in the year-ago quarter. The gross margin performance was mainly impacted by $275 million of charges incurred for manufacturing underutilization and inventory write downs among other expenses. HDD gross margin contracted 340 bps year over year to 24.3%. Flash gross margin was a negative 5% against 36% reported in the prior-year quarter.
Non-GAAP operating expenses moved down 19% from the year-ago quarter’s level to $602 million. Non-GAAP operating loss totaled $304 million against the non-GAAP operating income of $650 million in the prior-year quarter.
Balance Sheet & Cash Flow
As of Mar 31, cash and cash equivalents were $2.22 billion compared with $1.871 billion reported as of Dec 30, 2022.
The long-term debt (including current portion) was $7.073 billion as of Mar 31. Western Digital used $381 million in cash from operations against $398 million of cash generated from operations in the previous-year quarter.
Free cash outflow amounted to $527 million against the free cash flow $148 million reported in the prior-year quarter.
Q4 Guidance
For fourth-quarter fiscal 2023, the company expects non-GAAP revenues in the range of $2.4-$2.6 billion. Management projects non-GAAP loss per share to be between $1.90 and $2.20.
WDC expects non-GAAP gross margin in the range of 3-5%. Non-GAAP operating expenses are expected to be between $580 million and $600 million.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates review.
The consensus estimate has shifted -44.95% due to these changes.
VGM Scores
At this time, Western Digital has a poor Growth Score of F, however its Momentum Score is doing a bit better with a D. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Western Digital has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
Performance of an Industry Player
Western Digital is part of the Zacks Computer- Storage Devices industry. Over the past month, Teradata (TDC), a stock from the same industry, has gained 10.3%. The company reported its results for the quarter ended March 2023 more than a month ago.
Teradata reported revenues of $476 million in the last reported quarter, representing a year-over-year change of -4%. EPS of $0.61 for the same period compares with $0.65 a year ago.
Teradata is expected to post earnings of $0.45 per share for the current quarter, representing a year-over-year change of +36.4%. Over the last 30 days, the Zacks Consensus Estimate has changed +2.3%.
Teradata has a Zacks Rank #3 (Hold) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of B.
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