STX And LOGI Q3 Earnings: Here Are The Key Predictions

The third-quarter reporting cycle has begun and 52 S&P 500 members, representing 16.7% of the index’s total market capitalization, have already released their results.

Per the latest Earnings Trends, total earnings of these companies are up 13.3% on a year-over-year basis (76.9% of the companies beat EPS estimates). Total revenue is up 6.9% (73.1% of the companies beat top-line estimates).

Third-quarter earnings for S&P 500 companies are anticipated to be up 3% from the year-ago quarter on revenues that are estimated to increase 4.9%. The anticipated growth rate is definitely sluggish when compared with the double-digit growth in each of the first two quarters of the year.

Of the 16 sectors, eight are expected to report earnings growth, with robust performance anticipated from Oil/Energy, Conglomerates and Technology.

Technology Earnings Expectations

We note that the technology sector has been a strong performer on a year-to-date basis. As of Oct 18, only 9.8% of the total market capitalization has reported results. Total earnings of these technology companies surged 52.8% on a year-over-year basis (83.3% of the companies beat EPS estimates) while total revenue increased 13.8% (100% of the companies beat top-line estimates).

The sector is benefiting from increasing demand for cloud-based platforms, growing adoption of Artificial Intelligence (AI) solutions, Augmented/Virtual reality devices, autonomous cars, advanced driver assisted systems (ADAS) and Internet of Things (IoT) related software.

Cloud momentum was evident from International Business Machines Corporation’s (NYSE:IBM) latest quarterly result.

Earnings for the technology sector are now anticipated to be up 9.9% on top-line growth of 6.9%.

Let’s take a sneak peek into two technology companies that are set to report their quarterly earnings on Oct 23:

We expect Seagate Technology Plc’s (NASDAQ:STX) first-quarter fiscal 2018 earnings to be hurt by worldwide weak PC shipment data from Gartner and IDC, intensifying competition from Western Digital Corporation (NASDAQ:WDC) and lack of significant presence in the flash market.

Seagate is a hard disk drive (HDD) manufacturer and is primarily dependent on PC sales.We note that a decline in PC shipment reflects weak demand, which doesn't bode well for the company.

However, improving ramp of nearline drives, renewal of existing partnership with Baidu Inc (NASDAQ:BIDU) and stringent cost control can somewhat offset negative trends.

Seagate’s management anticipates revenues in the range of $2.5 billion to $2.6 billion for the first quarter of fiscal 2018. The Zacks Consensus Estimate for revenues is currently pegged at $2.53 billion, reflecting year-over-year decline of 9.5%.

Seagate’s stock has declined 10% year to date, substantially underperforming the 15% rally of the industry.

On the other hand, Logitech International S.A. (NASDAQ:LOGI) has gained 47.8% year to date, substantially outperforming the 15.4% rally of the industry.

The outperformance can be attributed to the thriving cloud-based video-conferencing services, gaming and Smart Home business. Moreover, strategic product launches and restructuring actions have been key growth drivers. Logitech is enjoying an all-pervasive growth of its retail business, which will boost top-line growth in the second quarter of fiscal 2018.

Logitech remains optimistic that the steady traction of its product lines, as well as positive industry trends will continue to fuel growth. The company has been able to leverage its software and go-to-market capabilities to drive market share gains.

Moreover, the Astro acquisition will expand Logitech’s competitive position in the Console Gaming headset market. Additionally, the cost-saving program is anticipated to bear positive impact on profitability.

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