Micron Stock: Just Awful (NASDAQ:MU)

After the bell on Thursday, we received fiscal Q4 results from memory and storage solutions leader Micron (NASDAQ:MU). Over the last couple of months, expectations had come down dramatically given management’s very weak guidance for the quarter. Unfortunately for shareholders, the company delivered another awful report, making it seem like a new low for shares is just around the corner.

Let me just remind everyone that at the Q3 report, Micron anticipated fourth quarter revenue to be between $6.8 billion and $7.6 billion, whereas the street was over $9 billion and that number itself was down about 5% in the month prior to that late June report. Despite this guidance, Micron came in with fiscal Q4 revenues for the period ending on September 1st of just $6.64 billion, missing street estimates by $140 million. This topline figure was a nearly 20% drop over the prior year period.

This huge revenue drop also impacted the rest of the income statement quite significantly. Non-GAAP gross margins fell by more than 750 basis points, while adjusted operating expenses were up almost 14% despite the poor revenue situation. Even with the company’s buyback plan helping reduce the share count a little, adjusted EPS of $1.45 were nearly a buck below the year-ago period. While this non-GAAP bottom line number did beat street estimates by 8 cents, let me remind you that terrible guidance caused the average estimate to drop by $1.25 per share since the company’s previous report.

With Micron’s sales being a bit sluggish, the biggest problem currently seems to be a tremendous amount of inventory. The company finished its fiscal year with over $6.66 billion worth of total inventory on the balance sheet, up more than a billion dollars sequentially and up almost 48.5% in the past 12 months. As a result, Micron is taking a very big step for the coming year, as detailed in the below quote from CEO Sanjay Mehrotra.

We are taking decisive steps to reduce our supply growth including a nearly 50% wafer fab equipment capex cut versus last year, and we expect to emerge from this downcycle well positioned to capitalize on the long-term demand for memory and storage.

Given the drop in expectations after last quarter’s guidance bombshell, you would think the worst could be behind us. Unfortunately, that isn’t the case quite yet. Micron guided to fiscal Q1 revenues of $4.25 billion, plus or minus $250 million. That is not only substantially below last year’s nearly $7.7 billion figure, but it is nearly a billion and a half dollars below the average street estimate. This is despite the analyst average dropping from $9.43 billion to $5.68 billion over the past three months. Gross margin guidance was also dreadful, with non-GAAP EPS of 4 cents, plus or minus a dime per share, significantly below the 72 cents that analysts were looking for. On a GAAP basis, the midpoint that management gave calls for a Q1 loss. In last year’s Q1 period, Micron reported a GAAP profit of more than $2.3 billion.

I mentioned in my previous article that I expected the average price target to drop on the weak Q4 guidance, and it did from $95 to $71 in between earnings reports. That key number is likely to fall even more given this revenue miss and terrible guidance, so any potential upside that investors were looking for is collapsing quite quickly. Shares in the after-hours session were less than $1.50 from a new 52-week low, and as the chart below shows, a declining 50-day moving average (purple line) could provide further resistance in the coming months.

In the end, Micron reported awful results after the bell on Thursday. Not only did the company miss dramatically reduced Q4 revenue estimates, but it guided well below for Q1 as well, despite a $3.75 billion plunge in the street’s average topline estimate. With a bloated level of inventory on the balance sheet, gross margins are now set to fall, nearly eliminating any adjusted profits. On a GAAP basis, management is guiding to a loss for the quarter after a large profit in last year’s period. I expect to see a lot of negative analyst notes and price target cuts coming, and it wouldn’t surprise me to see shares set a new yearly low after this report. For those hoping the company’s results were nearing a bottom, you are going to have to wait a bit longer.