Shares of LED lighting company Cree fell as much as 17 percent in after-hours trading Tuesday after the company’s quarterly revenue fell short of Wall Street’s expectations and it issued disappointing guidance.
“With stocks, particularly tech stocks, it’s all about the guidance,” said Harsh Kumar, an analyst at Stephens.
Kumar said analysts are concerned that the company’s light bulbs for consumers – its fastest-growing product segment – have lower profit margins than its other products.
Cree reported after the markets closed that revenue for its fiscal first quarter that ended Sept. 29 totaled $391 million, a 24 percent jump that nonetheless was $1 million less than analysts predicted.
The company’s net income, after excluding stock-based compensation and amortized goodwill, was on target at $47.3 million. That was a 49 percent increase that amounted to 39 cents per share.
Cree projected that second-quarter will range from $400 million to $420 million. Analysts polled by Thomson Reuters have been targeting $414 million.
Likewise, Cree forecast that net income in the second quarter is expected to range from 36 cents to 41 cents per share. Analysts have been projecting 37 cents to 49 cents per share.
Ignoring investors’ initial reaction and focusing on the company’s improved performance, CEO Chuck Swoboda said during a conference call that the company’s 2014 fiscal year “is off to a good start.”
Cree makes LED light bulbs and indoor and outdoor LED light fixtures, as well as components that other companies use in their lighting products. Its LEDs also illuminate car dashboards, mobile phones, televisions and electronic signs.
There was a whiff of deja vu to Cree’s latest projections. The company’s shares plunged 22 percent on Aug. 14, a day after the company issued disappointing guidance for the first quarter.
Cree’s shares, which have a history of volatility, have more than doubled this year. Earlier Tuesday, the company’s shares closed at $74.32, up 92 cents.
Swoboda said that the company is sticking to its long-term strategy of driving growth by introducing innovative new products.
“The tremendous success of the Cree LED bulb at the Home Depot is the most recent example of why we believe this is a winning strategy for Cree,” he said.
In March, Cree launched the new bulbs, available exclusively at Home Depot, that retail starting at $9.97 for the equivalent of a 40-watt incandescent bulb. That was a breakthrough price when the bulbs were introduced, but competitors have since responded with lower-priced bulbs of their own.
Cree’s light bulbs received Energy Star qualification earlier this month – sooner than the company expected – making the bulbs eligible for rebates offered by utilities. Swoboda said in an interview that those rebates, which have been available in a limited number of markets so far, are in the neighborhood of $5 per bulb.
Duke Energy Progress is among the utilities that have offered rebates.
Swoboda said that although competitors have slashed prices on their own bulbs, he’s not worried because he considers them inferior.
“Generally speaking, the (competitors’) lower-priced products are also lower performance,” he said.
Swoboda also said Cree is planning to ship more LED bulbs to Home Depot stores this quarter than it planned just a few months ago because of consumer response and the new rebates offers.