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Why Cree Stock Just Dropped 8%

By Rich Smith - Jan 30, 2020 at 2:12PM

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Cree beats on sales, misses on earnings -- and warns of worse to come.

What happened

Cree (WOLF 7.24%) stock is tumbling, getting pummeled 8.2% (as of 1:40 p.m. EST) after the company reported a bit of a sales beat last night...but an earnings miss, and a warning of worse earnings to come.  

Yesterday after close of trading, Cree reported fiscal second-quarter 2020 sales of $239.9 million, or $3.5 million more than Wall Street analysts had predicted. Profits, however, went missing, with Cree reporting an "adjusted" loss of $0.10 per share, versus the expected $0.09 per-share loss.  

Glowing red stock line trending down

Image source: Getty Images.

So what

Despite beating expectations, Cree's sales declined 14% year over year. Earnings, which already looked pretty bad for being negative, were even more negative when calculated according to generally accepted accounting principles (GAAP), rather than the pro forma accounting that analysts focus on. Cree's GAAP loss came to $0.49 per share, much worse than last year's breakeven results.

Despite all this bad news, Cree CEO Gregg Lowe insisted that, "we continue to see growing momentum for silicon carbide as demonstrated by our robust opportunity pipeline and recent customer wins," and said he sees "several growth opportunities across multiple sectors" in the long term.

Now what

It's the short term, though, that's worrying investors. Wall Street had been hoping to see sales rebound to nearly $238 million at Cree in the third quarter, alongside a shrinking pro forma loss of only $0.07 per share.

Instead, Cree is now warning that for its fiscal Q3, already under way, it's probably looking at a $0.57 to $0.63 GAAP loss per diluted share, and a $0.09 to $0.15 pro forma loss on revenue ranging from $221 million to $229 million.

No wonder Cree investors are upset.

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