Cree’s Stock Price Declines Due To Weak FY’17 Outlook

by Trefis Team
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Leading LED manufacturer, Cree (NYSE:CREE) reported its Q1′ 2017 earnings on October 18th. (Fiscal years end with June.) Though the company’s revenues came in at the higher end of its guided range, its gross margins and non-GAAP earnings per share declined on a year-over-year basis. The company continued to experience the negative impact of the customer service disruptions caused by an ERP system upgrade that was initiated by Cree in fiscal Q3’16. Furthermore, as Cree’s growth outlook in the near-term remained weak, its stock price has declined by approximately 10% since the Q1 earnings announcement. Going forward, the company has prioritized following action items for FY 2017 to support its transition to a more focused LED company:

  • Completing the sale of WolfSpeed to Infineon by the end of calendar year: In Q4’16, Cree announced the sale of its Power and RF division to Infineon in an effort to become a more focused LED lighting company. This transaction is expected to close by the end of this calendar year. It should help Cree improve its cash position and accelerate the growth of its lighting and LED businesses.
  • Driving top-line growth for LED lighting business: Though Cree’s performance in the past year has been significantly affected by the heightened competition in the lighting market, it is focused on expanding its product offering to drive its top-line growth higher going ahead. Cree recently came up with a new GEN4 LED bulb, which according to the company provides premium light and quality at a lower price point. The company believes that this new bulb has the potential to improve its margins going ahead. The company has also hinted at having an increased focus on smart lighting related products, which could be the key to its long term growth. Increased demand for energy efficient and intelligent lighting solutions is likely to drive this market. The company is also likely to consider M&A opportunities as they arise, to expand its business inorganically.
  • Improving operating margins: The company aims to improve its operating margins, primarily through gross margin improvement by launching new products at lower costs. Though the company believes that its operating expense is likely to increase in Q2’17, due to an increase in promotional spending related to the GEN4 bulb launch, it expects operating expenses to be offset by higher revenue growth thereafter.

In the table below we note the key metrics as reported for the company in Q3’16:

Screen Shot 2016-10-19 at 6.40.16 PM

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