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Why Shares of Cree, Inc. Plunged 15% Today

By Travis Hoium – Oct 19, 2016 at 12:13PM

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A drop in revenue had investors worried the future isn't as bright as expected for Cree, Inc.

Image source: Getty Images.

What happened 

Shares of LED maker Cree, Inc. (WOLF 4.41%) dropped as much as 14.7% in trading Wednesday after reporting fiscal first quarter results. At 11:35 a.m. EDT shares were still down 10.6% on the day.

So what

Revenue fell 13% to $371 million, but revenue from continuing operations was down 16% to $321 million. On the bottom line, the company had net income of $566,000, which is breakeven per share, but the loss per share from continuing operations was $0.03. The loss was well below the $0.11 per share in earnings expected from Wall Street.

Management also said they expect fiscal second quarter revenue to be $360 million to $380 million, including discontinued operations, and net income of $10 million to $11 million. On a non-GAAP basis, earnings per share are expected to be $0.13 to $0.19 compared to analysts' estimate of $0.15 per share in earnings.

Now what

Cree's transition to a focus on lighting is resulting in some turbulent results, but long term the company is betting that's where the most value lies. More growth opportunities will open up as the cost of LEDs drops and customers move to the more efficient source of lighting. But it will also come with lower prices, meaning volume has to overcome the lower revenue per unit. This is a dynamic Cree has been fighting for years and investors aren't seeing enough progress to see the light of consistent profits at the end of the tunnel.

Travis Hoium has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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