Fly Intel: What to watch in NetApp's earnings report

NetApp (NTAP) is scheduled to report results of its fiscal first quarter after the market close on Wednesday, August 14, with a conference call scheduled for 5:00 pm ET. What to watch for: 1. NEGATIVE PRE-ANNOUNCEMENT: On August 1, NetApp reported preliminary Q1 adjusted earnings per share of 55c-60c on revenue of $1.22B-$1.23B. Both ranges are significant declines from the outlook the company provided in its previous earnings report in May, when it guided for Q1 EPS of 78c-86c on revenue of $1.315B-$1.465B. At the time of the pre-announcement, analysts were expecting the company to report Q1 EPS of 83c on revenue of $1.39B, but those figures have since fallen to 61c and $1.24B, respectively. NetApp noted in its pre-announcement press release that net revenues in Q1 in the previous year included $90M from enterprise software license agreements which did not repeat in the first quarter of fiscal year 2020. In addition, the company lowered its fiscal 2020 revenue growth view to down 5%-10% year-over-year, below its previously stated FY20 guidance, which reflected an expectation that net revenues for FY20 would grow year-over-year at the low-end of the mid-single-digit range. "While we are disappointed that our preliminary results for the first quarter are lower than we had previously anticipated, we remain confident in our long-term strategy and the health of our business model," said NetApp CEO George Kurian. "Our customer conversations indicate that our hybrid multicloud portfolio of solutions is the right one. We believe we can return to growth over time by prudently reallocating investments to expand sales coverage and accelerate our participation in the growing Private Cloud and Cloud Data Services markets." 2. ANALYST DOWNGRADES: Following the negative pre-announcement, Piper Jaffray analyst Andrew Nowinski downgraded NetApp to Neutral from Overweight and cut his price target for the shares to $48 from $75. Nowinski said at the time that he believes the company's "weak" macro environment could persist for the next 6-12 months and that it will be difficult to fix its execution issues against that backdrop. In addition, Dell (DELL) could increase pressure on NetApp, particularly when it launches a new mid-range platform at the end of 2019, the analyst said. In addition, BofA/Merrill analyst Wamsi Mohan at the time also downgraded NetApp to Neutral from Buy, citing the company's view of a slowdown of IT spending at large accounts and sales execution issues. The analyst added that after benefiting from selling All-Flash-Arrays into its installed base, NetApp is now facing "incremental pressure as the refresh cycle continues. 3. DIVIDEND: Along with its last earnings report, NetApp announced that it was raising its quarterly dividend by 20% to 48c per share. The dividend was paid on July 24 to shareholders of record as of the close of business on July 5.

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