In a signal that at least some parts of the optical communications space may be softening, Lumentum Holdings Inc. preannounced preliminary financial results for its fiscal third quarter ended April 1, 2023, that predicted revenue well below its former guidance. The company’s stock price slid as a result.
Lumentum management now believes they will report revenue in the range of $380 million to $384 million for the fiscal third quarter. The company previously guided $430 million to $460 million.
Company President and CEO Alan Lowe pointed to slowing shipments to a major customer as the reason for the shortfall. “Late in our fiscal 2023 third quarter, a network equipment manufacturer who represented more than 10% of our fiscal second quarter revenue informed us that due to their inventory management, they would not take the shipments we had originally projected for the quarter,” explained Lowe. “This shortfall is the primary reason that our fiscal 2023 third quarter revenue will be below the low end of our prior guidance range. Looking ahead, we expect a similar level of shipments to this customer in our fiscal Q4, as we saw in Q3. Nevertheless, our customer relationship remains strong, and we continue to work together closely to help them achieve success.”
Simon Leopold of Raymond James & Associates Equity Research, theorized in a note to investors later in the morning that Ciena was the network equipment manufacturer to which Lowe referred. Leopold noted that Ciena had revealed plans to reduce its inventory during its most recent earnings call March 6, 2023. As if to underscore this point, Ciena today reaffirmed its guidance for its fiscal second quarter and full year 2023, including “previous statements with respect to both the demand environment and the normalization of backlog and inventory dynamics,” to quote the announcement.
Despite Lumentum’s apparent setback, Leopold reiterated his Outperform rating for the company’s stock, even though he lowered his price target to $73. Other analysts were not as kind, however. Rosenblatt analyst Mike Genovese lowered his rating on Lumentum’s shares to Neutral from Buy and the per-share price target from $77 to $48. The market appeared to side with Genovese; Lumentum’s share price dropped more than 12% in premarket trading, according to Seeking Alpha. As of 2:34 PM EDT, Lumentum traded at $46.38, down 9.61%
Repurchase plan increases
Despite the negative preannouncement, “We have confidence in our long-term strategy and operating model, and today we are announcing an increase in our share repurchase program,” Lowe also revealed today.
Lumentum’s share repurchase program authorization has been increased to an aggregate $1.2 billion; the duration of the program also has been extended through May 2025. The program previously carried an earmark of $1 billion through May 2024. The company plans to fund the repurchases from its existing cash balance.
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