Analyst Highlights Three Main Factors For Cree's Q3 Guidance Cut; Stock Falls ~20%

Cree, Inc. (NASDAQ: CREE) pre-announced its F3Q results, with the revenue and EPS below the guidance, driven by lower lighting product revenues.

Summit Research’s Srini Sundararajan maintains a Hold rating on the company, while lowering the price target from $30 to $25.

F3Q Pre-Announcement

The company pre-announced its F3Q revenue at $376 million, below the guidance of $400–$430 million. The GAAP and Non-GAAP EPS were also both below the guidance.

Related Link: Cree Downgraded At JPMorgan, Says Outperformance "Puzzling"

Sundararajan now expects the GAAP and Non-GAAP gross margin to come in below the guidance at 29.7 percent and 30.5 percent, respectively.

Reasons For Shortfall

While revenues from LED products and power and RF products were in-line with the guidance, lighting products’ revenue came in 20 percent below the guidance, driven by lower commercial orders.

Sundararajan mentioned that the decline in commercial orders was due to “customer service disruptions related to CREE’s ERP system conversion, new product delays and a slower than forecast C1Q16.”

Cree Inc. attributed part of the shortfall to the impact of a stronger dollar on overseas sales, as well as the slowing in the retrofit market in the United States.

According to the Summit Research report, “The updated results also include inventory write-down in LED tubes and the effect of lower factory utilization in Lighting products.”

Future Outlook

The company announced that the commercial lighting base order rate improved in March and that management was optimistic regarding this and an improvement in new product demand driving growth in F4Q.

At time of writing, Cree was down roughly 20 percent in pre-market trading.

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