What's in Store for Western Digital (WDC) in Q4 Earnings?

Western Digital WDC is scheduled to report fiscal fourth-quarter 2019 results on Jul 31.

Notably, the company missed the Zacks Consensus Estimate for earnings in three of the trailing four quarters and beating the same once, with an average negative earnings surprise of 16.8%.

Q3 at a Glance

Western Digital had reported third-quarter fiscal 2019 non-GAAP earnings of 17 cents per share which lagged the Zacks Consensus Estimate by 65.3%. The reported figure plunged 95.3% from year-ago earnings of $3.63.

Revenues decreased 26.7% year over year to $3.674 billion, missing the Zacks Consensus Estimate of $3.70 billion.

Guidance & Estimates in Q4

For fourth-quarter fiscal 2019, revenues are expected to be in the range of $3.6-$3.8 billion. The Zacks Consensus Estimate for revenues is currently pegged at $3.69 billion, indicating a decline of almost 27.9% from the year-ago quarter.

Management projects non-GAAP earnings between 10 cents and 30 cents per share. The Zacks Consensus Estimate for earnings is pegged at 18 cents, suggesting a fall of approximately 95% from the year-ago reported figure. Notably, estimates have declined 10% in the past 30 days.

Let’s see how things are shaping up prior to this announcement.

Factors Likely to Influence Q4 Results

Improving Trend in PC Shipments to Favor Results

Per Gartner’s preliminary data, PC shipments in the second quarter 2019 inched up 1.5% year over year to 63 million units. Going by the IDC report, shipments rose 4.7% on a year-over-year basis and totaled 64.9 million in the period under review.

Improving trend in PC shipments is favoring Western Digital’s stock performance. Notably, shares of Western Digital have returned 57.6% in the past year, outperforming industry’s rally of 16.6%.

Moreover, improving PC shipments is likely to lead to an improvement in Western Digital’s Client Devices revenues in the to-be-reported quarter. In the last reported quarter, Client devices revenues declined 29.7% year over year and came in at $1.625 billion. The Zacks Consensus Estimate for Client devices revenues for the to-be-reported quarter is currently pegged at $1.658 billion.

NAND Flash Pricing Trends Remain Challenging

Western Digital is facing challenges owing to NAND flash pricing, which has been on the decline on account of oversupply and weaker-than-expected growth in end-market demand. Further, uncertain macroeconomic environment and highly leveraged balance sheet remain headwinds.

Moreover, Western Digital faces stiff competition from Seagate STX, Hitachi, Samsung and Intel INTC in the storage market which has resulted in a decline in the average selling price (ASP).

In the third quarter, the company shipped 27.8 million HDDs at an average selling price (ASP) of $73. Notably, the Zacks Consensus Estimate for total unit shipments for the fiscal fourth quarter is pegged at 30.22 million at an ASP of $72.

Other Factors Concerning Q4

During the quarter under review, Western Digital announced collaboration with Veeam in an effort to develop joint solution that integrates Veeam Universal Storage API with IntelliFlash all-flash arrays Plug-in family.

The company also inked an agreement with Toshiba Memory Corporation to invest in the “K1” manufacturing facility in Kitakami. The latest facility will manufacture 3D flash memory to address the needs of new age smartphones, increasing demand for storage in data centers and autonomous cars.

Further, Western Digital rolled out WD Purple SC QD312 Extreme Endurance micro-SD card, expanding Purple family of tailor-made cards for futuristic surveillance cameras.

Western Digital Corporation Price and EPS Surprise

Western Digital Corporation Price and EPS Surprise

Western Digital Corporation price-eps-surprise | Western Digital Corporation Quote

The aforementioned collaborations and product additions are expected to enhance Western Digital’s existing product portfolio. We believe that the adoption of company’s expanding storage solutions portfolio is likely to aid it in reviving its fortunes in the upcoming quarterly results.

Notably, the Zacks Consensus Estimate for Client Solutions revenues for the to-be-reported quarter is currently pegged at $835 million, compared with the year-ago reported figure of $1.031 billion and prior-quarter figure of $804 million.

What Our Model Says

According to the Zacks model, a company with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) has a good chance of beating estimates if it also has a positive Earnings ESP. The Sell-rated stocks (Zacks Rank #4 or 5) are best avoided.

Western Digital has a Zacks Rank #3 and an Earnings ESP of -45.71%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Stock to Consider

Here is a stock you may consider, as our proven model shows that it has the right combination of elements to post an earnings beat this quarter.

CGI Group, Inc. GIB has an Earnings ESP of +1.27% and a Zacks Rank #2. The company is set to report third-quarter 2019 earnings on Jul 31. You can see the complete list of today’s Zacks #1 Rank stocks here.

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