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Finisar's (FNSR) Q4 Earnings and Revenues Miss Estimates

Zacks Equity Research
Updated

Finisar Corporation FNSR reported disappointing fourth-quarter fiscal 2018 results, wherein both the top line and the bottom line missed estimates.

Non-GAAP earnings per share declined significantly to 5 cents from 50 cents in the year-ago quarter primarily due to higher cost of revenue and operating expenses. The bottom line lagged the Zacks Consensus Estimate of 12 cents.

Though revenues were within the guided range of $300-$320 million, gross margin was lower than expected at 20.2%.

Net Income

On a GAAP basis, quarterly net loss came in at $18.3 million or loss of 16 cents per share against net profit of $130.2 million or $1.13 per share in the year-ago quarter. The deterioration was primarily due to a fall in revenues and lower gross margin. On a non-GAAP basis, net income was $5.8 million for the quarter compared with $57.5 million in the year-ago quarter.

Fiscal 2018 net loss (GAAP) was $48.3 million or loss of 42 cents per share against net income of $249.3 million or $2.19 cents per share in fiscal 2017. On a non-GAAP basis, net income was $100.4 million or 86 cents per share in fiscal 2018 compared with $231.7 million or $2.03 per share a year ago.
 

Finisar Corporation Price, Consensus and EPS Surprise

Finisar Corporation Price, Consensus and EPS Surprise | Finisar Corporation Quote

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Revenues

Total quarterly revenues decreased 13.8% year over year to $310.1 million primarily due to lower demand of telecom products. Also, the top line missed the Zacks Consensus Estimate of $315 million. This decline was the combined outcome of an expected fall in 3D sensing applications and high capital expenditures.

Fiscal 2018 revenues totaled $1,316.5 million compared with $1,449.3 million a year ago.

Performance by Product Category

In the fiscal fourth quarter, datacom products sales decreased to $248 million majorly due to the expected decline in revenues from the company’s VCSEL laser arrays for 3D sensing applications.

Telecom products sales decreased to $62.1 million in the quarter, owing to the impact of full three months of annual telecom price reductions.

In fiscal 2018, sales of products for datacom applications fell $12.8 million and revenues from telecom applications decreased $120.0 million year over year primarily due to lower demand from China’s original equipment manufacturers.

Operating Metrics

Total operating expenses for the quarter increased to $89.3 million from $84.3 million in the year-ago quarter. The purchase of a new building in Sherman added $2.9 million to expenses.

Non-GAAP operating income for the reported quarter was $4.6 million compared with $58.4 million in the year-ago period. The significant decline was due to lower revenues.

Fiscal 2018 non-GAAP operating income was $99.2 million compared with $240.6 million in the prior year.

Balance Sheet and Cash Flow

At the end of fiscal 2018, Finisar had cash and cash equivalents of $312.3 million compared with $260.2 million in the year-ago period. Total liabilities at fiscal end were $959.6 million compared with $977.2 million a year ago.

Guidance

Finisar expects fiscal 2019 revenues in the range of $305-$325 million, non-GAAP gross margin between 26% and 27%, non-GAAP operating margin within 4-5% range and non-GAAP earnings per share in the range of 10-16 cents. The expectations of higher revenues and gross margin are backed by the company’s focus on improvement of various aspects of the business, including product development efforts, better efficiency and execution, and reduction of costs.

Zacks Rank and Stocks to Consider

Finisar currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the industry space are Comtech Telecommunications Corp. CMTL, sporting a Zacks Rank #1 (Strong Buy), Motorola Solutions, Inc. MSI and Ubiquiti Networks, Inc. UBNT, carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Comtech has an expected long-term earnings growth rate of 5%.

Motorola has an expected long-term earnings growth rate of 8%.

Ubiquiti has an expected long-term earnings growth rate of 18.6%.

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