Wolfspeed (WOLF) has been facing headwinds in recent weeks, with its stock price declining by roughly 31.3% since the last earnings report. This underperformance against the S&P 500 begs the question: will the downward trend continue, or is Wolfspeed poised for a rebound? To get a clearer picture, let’s delve into the company’s recent earnings report and see how investors and analysts are reacting.
In the fourth quarter of fiscal 2024, Wolfspeed reported a non-GAAP loss of 89 cents per share, exceeding the Zacks Consensus Estimate of a loss of 84 cents. While this was narrower than the previous year’s loss of 36 cents per share, it still highlights the challenges the company is facing. Revenues for the quarter amounted to $200.7 million, marking a slight 1% year-over-year decrease and falling short of the consensus estimate by a narrow margin.
The company’s Mohawk Valley Fab contributed $41 million in revenues during the quarter. Power Products, representing 52.1% of total revenues, saw a 2.3% year-over-year decline to $104.6 million. Conversely, Materials Products, contributing 47.9% of revenues, experienced a modest 0.5% increase to $96.1 million. Despite the revenue decline, Wolfspeed reported $2 billion in Power device design-ins during the quarter, with an additional $0.5 billion in quarterly design wins.
Looking at the company’s operating details, Wolfspeed reported a non-GAAP gross margin of 5.4%, a significant drop from the 30.7% reported in the same period last year. Underutilization costs of $24 million negatively impacted the gross margin. Sales, general, and administrative expenses rose by 37.6% year-over-year to $60 million, representing 29.9% of total revenues. Research and development expenses also increased, rising 4.8% year-over-year to $61.6 million, representing 30.7% of total revenues. In addition, Wolfspeed incurred $20.5 million in factory start-up costs during the fourth quarter. Consequently, the company reported a non-GAAP operating loss of $118.9 million, wider than the operating loss of $66.8 million in the previous year.
As of June 30, 2024, Wolfspeed held $2.17 billion in cash, cash equivalents, and short-term investments, compared to $2.55 billion on March 31, 2024. Long-term debt stood at $3.13 billion as of June 30. The company experienced a free cash outflow of $885.3 million, comprising $239.5 million of operating cash outflow and $644.2 million of capital expenditures.
Looking ahead, Wolfspeed expects revenues in the range of $185-$215 million for the first quarter of fiscal 2025. The company anticipates a non-GAAP loss between 90 cents and $1.09 per share. The Mohawk Valley Fab is projected to contribute $20-$30 million in revenues during the first quarter. Wolfspeed expects a non-GAAP gross margin between 13-20%, with non-GAAP operating expenses estimated at $109 million, including $13 million of start-up costs.
In the past month, investors have witnessed a downward trend in fresh estimates for Wolfspeed, causing the consensus estimate to shift -11.14%. Currently, Wolfspeed has a poor Growth Score of F, along with the same score on the momentum and value fronts. This translates to an aggregate VGM Score of F, placing it in the bottom 20% quintile for investment strategies. The downward trend in estimates and the resulting Zacks Rank of #3 (Hold) suggest an in-line return from the stock in the next few months.
While the recent earnings report highlighted some challenges, it’s crucial to remember that Wolfspeed operates in a rapidly evolving industry with significant growth potential. The company’s focus on developing innovative power and radio frequency technologies positions it well for the future. However, investors should closely monitor the company’s progress in addressing its operational challenges and achieving profitability.
