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Cree (CREE) Earnings & Revenues Surpass Estimates in Q4

Zacks Equity Research

Cree Inc. CREE reported non-GAAP earnings of 11 cents per share in fourth-quarter fiscal 2019, which surpassed the Zacks Consensus Estimate of 10 cents.

Revenues came in at $251.2 million, down 5% year over year. However, the figure outpaced the Zacks Consensus Estimate of $248 million.

Cree had concluded the divestiture of Lighting Products business unit (or Cree Lighting) to IDEAL INDUSTRIES, Inc. The agreement includes the company’s LED lamps, corporate lighting solutions, and lighting fixtures aimed at industrial, consumer and commercial end-markets.

Cree Lighting will be reported under “discontinued operations.”

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Shares of Cree have returned 36.2% on a year-to-date basis, outperforming the industry’s rally of 19.2%.

Quarter Details

Cree now has two reportable segments – Wolfspeed and LED Products.

Wolfspeed revenues surged 22% year over year to $134.2 million and accounted for 53% of total revenues.

LED Products revenues were $117 million, down 25% on a year-over-year basis and accounted for 47% of total revenues. Weakness in worldwide trade uncertainties affected segmental revenues.

Non-GAAP gross margin was 37%, which expanded 100 bps on a year-over-year basis. Segment wise, LED Products gross margins contracted 300 bps, while Wolfspeed gross margins expanded 200 bps year over year.

Non-GAAP operating margin contracted 300 bps from the year-ago quarter to 4%.

Balance Sheet & Cash Flow

Cree exited fourth-quarter fiscal 2018 with cash, cash equivalents & short-term investments of $1.05 billion as compared with $789.3 million reported in the previous quarter.

During the fourth quarter, cash from operations was $3 million and capital expenditures were $37 million including patents, which resulted in free cash flow of ($34) million.

Guidance

For the first quarter of fiscal 2020, Cree expects revenues in the range of $237-$243 million. The Zacks Consensus Estimate is pegged at $259.6 million.

Non-GAAP loss is projected in the range of 3-7 cents per share. The Zacks Consensus Estimate is pegged at 14 cents.

LED revenues are projected to be down 2% to 4% in first quarter owing to weakness in Asian market. Wolfspeed business is anticipated to be down marginally around 5% to 7% on account of the “Huawei ban and software selling conditions in China.”

Non-GAAP gross margin is targeted at approximately 30.8%. Wolfspeed and LED margins are expected to be 46.3% and 17.5%, respectively, primarily due to lower factory utilization and sales volume.

Zacks Rank & Stocks to Consider

Currently, Cree carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the broader technology sector worth considering are Science Applications International Corporation SAIC, Chegg CHGG and Anixter International AXE. All the three stocks flaunt a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings growth rate for Science Applications, Chegg and Anixter is currently pegged at 5.5%, 30% and 8%, respectively.

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