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Lumentum (LITE) Q4 Earnings Top Estimates, Revenues Rise Y/Y

Lumentum Holdings LITE reported fourth-quarter fiscal 2019 earnings of 92 cents per share, which beat the Zacks Consensus Estimate of 73 cents. However, the figure decreased 3.2% year over year.

Net revenues of $404.6 million also beat the Zacks Consensus Estimate of $385 million and increased 34.4% from the year-ago quarter, driven by strong growth in Optical Communications segment.

Top-Line Details

Optical Communications segment (88.2% of net revenues) revenues surged 45.7% year over year to $356.8 million.

Within the segment, telecom (63.8% of Optical revenues) revenues rose 71.1% year over year to $227.7 million. Within telecom, transport revenues increased nearly 50% year over year. Growth in other customers partially offset lower shipments to Huawei in the reported quarter.

Despite geopolitical disruptions, the company benefited from coherent transmission modules and Reconfigurable Optical Add-Drop Multiplexer (ROADM). Higher speed transmission products, Analog Coherent Optics (ACO) and Digital Coherent Optics (DCO) both reported sales growth for the quarter. Lumentum expects these product lines to further improve telecom revenue-mix in fiscal 2020.

Datacom (11.6% of Optical revenues) revenues increased 20.3% year over year to $41.5 million. Higher customer engagement in new Datacom photonic chips, including 5G wireless applications, drove revenue growth in the reported quarter.

Datacom’s Japan-based transceiver product line divestiture closed in fourth quarter. Lumentum expects revenues from datacom transceiver product lines to decline to zero over the next four to five quarters.

Industrial and consumer (24.6% of Optical revenues) revenues increased 13.3% year over year to $87.6 million driven by higher industrial diode and 3D sensing revenues.

Commercial Laser segment (11.8% of net revenues) revenues decreased 14.9% to $47.8 million.

Per management, sales to Huawei were down 25% sequentially in the fourth quarter and are expected to be flat to down in the first quarter of fiscal 2020.

Lumentum Holdings Inc. Price, Consensus and EPS Surprise

Lumentum Holdings Inc. price-consensus-eps-surprise-chart | Lumentum Holdings Inc. Quote

Operating Details

Non-GAAP total gross margin expanded 170 basis points (bps) from the year-ago quarter to 38.9%.

Non-GAAP optical communication gross margin expanded 350 bps from the year-ago quarter to 38.3% due to the divestiture of lower margin Datacom product lines and higher industrial and consumer mix.

Non-GAAP commercial laser gross margin contracted 440 bps from the year-ago quarter to 43.5% due to lower laser segment revenues.

Non-GAAP operating expense expanded 50 bps at 19.9% in the reported quarter. However, operating margin expanded 120 bps from the year-ago quarter to 19%.

Non-GAAP research and development (R&D) expenses increased 35.7% year over year to $46.4 million. Non-GAAP selling, general and administrative expenses (SG&A) surged 41.2% year over year to $34.3 million.

Notably, Lumentum achieved more than $60 million in annual expense synergies from the Oclaro acquisition in the fourth quarter.

Balance Sheet

The company exited the fourth quarter fiscal 2019 with $768.5 million in total cash and short-term investments, up $71 million from the third quarter of fiscal 2019.


Lumentum now expects net revenues between $435 million and $455 million for the first quarter of fiscal 2020. Non-GAAP operating margin is anticipated to be in the range of 22.5-24.5%.

Non-GAAP earnings are expected between $1.12 and $1.16 per share in first-quarter fiscal 2020.

Per management, for the first quarter 2020, telecom market is expected to be flat to up on the back of continued growth in global network bandwidth requirements and solid demand for building infrastructure related to 5G. However, temporary dip in submarine business revenues is expected to hurt telecom revenues.

Moreover, the company is restructuring its product suite for telecom customers. Reduction in overlapping products is expected to have minimal negative impact on revenues but anticipated to improve gross margin. Lumentum expects to complete the restructuring process over the next few quarters.

Lumentum expects laser revenues to soften in the first quarter 2020 as the first quarter is seasonally weak.

Also, the company foresees growth opportunity for its 3D sensing business in the international market due to increased customer popularity.

Zacks Rank & Stocks to Consider

Lumentum currently carries a Zacks Rank #5 (Strong Sell).

Some better-ranked stocks in the broader computer & technology industry include CACI International CACI, Cognizant Technology Solutions CTSH and Ciena Corporation CIEN. All three stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Long-term earnings growth rate for CACI International, Cognizant and Ciena is 10%, 10.1% and 17.3%, respectively.

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