Why Is Micron (MU) Down 2.3% Since Last Earnings Report?
It has been about a month since the last earnings report for Micron (MU). Shares have lost about 2.3% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Micron due for a breakout? 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.
Micron Reports Q2 Results
Micron reported stronger-than-anticipated results for second-quarter fiscal 2020. The company’s fiscal second-quarter non-GAAP earnings per share of 45 cents beat the Zacks Consensus Estimate by 18.4% and surpassed its guided range of 35 cents (+/- 6 cents) as well.
Moreover, quarterly revenues of $4.8 billion outpaced the consensus mark of $4.6 billion. The memory chip maker’s revenues also came in line with the higher-end of management’s guided range of $4.5-$4.8 billion.
Nonetheless, top and bottom lines both declined on a year-over-year basis. While revenues fell 17.8%, non-GAAP earnings slumped 73.7%.
Revenue Details
DRAM revenues of $3.1 billion, accounting for 64% of total revenues in the fiscal second quarter, slid 26% year over year and 11% sequentially. Bit shipments rose more than 20%, year on year, but were down nearly 10% sequentially. On a sequential basis, ASP was flat.
NAND revenues of $1.5 billion, representing 32% of the total top line, were up 9% on a year-over-year basis and 6% quarter on quarter. While NAND ASP increased in the upper single-digit’s percentage band, shipment quantities declined in low-single-digit percent range sequentially. Shipments grew approximately 20% year over year.
Business-unit wise, revenues of the computing and networking business (CNBU) unit deteriorated 17% from the year-ago quarter and 1% sequentially to $2 billion. The CNBU segment includes revenues from 3D XPoint. Excluding revenues from 3D XPoint, CNBU revenues declined 7% sequentially due to softer sales in the PC market.
Revenues of $1.3 billion from the Mobile Business Unit (MBU) dropped 22% on a year-over-year basis and 14% sequentially.
The Embedded Business Unit revenues logged $696 million, down 13% from the year-ago quarter and 5% from the previous quarter.
Revenues from the Storage Business Unit (SBU) comprising SSD NAND components and 3D XPoint totaled $870 million, down 15% year over year and 10% sequentially. Excluding 3D XPoint sales, SBU revenues increased 9% sequentially.
Margins
Micron’s non-GAAP gross profit of $1.4 billion slumped 52.3% from the prior-year period. Non-GAAP gross margin slipped from 50.2% in the year-ago quarter to 29.1%. Underutilization charges at the Lehi Lab had a negative impact of nearly 295 basis points.
Micron’s non-GAAP operating income of $542 million declined from the year-ago quarter’s $2.1 billion. Non-GAAP operating margin contracted from 36.2% to 11.3%.
Balance Sheet and Cash Flow
The company exited the reported quarter with cash and short-term investments of $7.5 billion compared with the $7.6 billion recorded at the end of the prior quarter.
Micron’s long-term debt of $5.2 billion remained flat quarter on quarter.
The company generated operating cash flow of $4 billion during the first half of fiscal 2020. Adjusted free cash flow during the first six months of fiscal 2020 is $149 million.
The company repurchased shares worth $159 million in the first half of fiscal 2020.
Guidance for Q3
Buoyed by better-than-expected quarterly results, Micron provided an upbeat guidance for the fiscal third quarter. The company anticipates revenues of $4.6¬-$5.2 billion (mid-point $4.9 billion) for the quarter.
For the fiscal third quarter, Micron expects non-GAAP gross margin of 31% (+/- 150 bps). Higher underutilization charges due to contracted production volumes are likely to be a dampener.
Operating expenses on a non-GAAP basis are likely to be $825 million (+/- $25 million).
Earnings per share are anticipated to be 55 cents (+/- 15 cents).
How Have Estimates Been Moving Since Then?
It turns out, estimates review flatlined during the past month.
VGM Scores
At this time, Micron has a subpar Growth Score of D, however its Momentum Score is doing a lot better with a B. Charting a somewhat similar path, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.
