A month has gone by since the last earnings report for Western Digital (WDC). Shares have added about 4.3% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Western Digital due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the latest earnings report in order to get a better handle on the important catalysts.
Western Digital Q4 Earnings Beat Estimates
Western Digital reported fourth-quarter fiscal 2025 non-GAAP earnings of $1.66 per share, which surpassed the Zacks Consensus Estimate by 12.2%. The company reported earnings of $1.44 per share in the prior-year quarter. Management anticipated fiscal fourth-quarter non-GAAP earnings per share to be $1.45 (+/- 20 cents).
Quarterly revenues of $2.61 billion surged 30% year over year, surpassing the Zacks Consensus Estimate of $2.45 billion. The growth reflects rising demand for high-capacity storage driven by cloud computing and generative AI, both of which require massive and cost-effective storage backbones that HDDs still provide. On a sequential basis, revenues increased 14%. For the fiscal fourth quarter, the company forecasted non-GAAP revenues of $2.45 billion (+/- $150 million).
For fiscal 2025, revenues skyrocketed 51% year over year to $9.5 billion. During the quarter, it shipped 190 exabytes of storage to customers, up 32% year over year, fueled by strong demand for nearline drives and growing volumes of its 26TB CMR and 32TB UltraSMR products. Also, shipments of its 26TB CMR and 32TB UltraSMR drives more than doubled from the previous quarter, topping 1.7 million units in June. This was one of the fastest ramps in its history.
Quarter in Detail
Revenues from the Cloud end market (90% of total revenues) climbed 36% year over year to $2.6 billion, driven by strong demand for higher-capacity nearline products.
Revenues from the Client end market (5%) were up 2% year over year to $140 million.
Revenues from the Consumer end market (5%) were down 12% year over year to $136 million.
Margins
It reported a non-GAAP gross margin of 41.3%, up 610 basis points year over year and above its guidance (40-41%). The increase was driven by a shift to higher-capacity drives and strong cost control across manufacturing and the supply chain.
Non-GAAP operating expenses decreased 16% year over year to $345 million, but were slightly above guidance ($330-$340 million), mainly due to higher variable compensation from better-than-expected performance.
Non-GAAP operating income totaled $732 million, up 147% year over year.
Balance Sheet & Cash Flow
As of June 27, 2025, cash and cash equivalents were $2.1 billion compared with $3.47 billion reported as of March 28, 2025.
The long-term debt (including the current portion) was $4.7 billion as of June 27, 2025, compared with $7.3 billion as of March 28.
Western Digital generated $746 million in cash from operations compared with $366 million in the prior-year quarter. Free cash flow amounted to $675 million in the quarter under review, up 139%.
With strong cash flow, a solid balance sheet and confidence in its business outlook, its board approved up to $2 billion in share buybacks. In the quarter, the company repurchased about 2.8 million shares for $149 million.
Fiscal Q1 2026 Outlook
Strong business momentum, particularly in cloud storage, is driving expectations for another solid quarter. At the mid-point of its guidance, Western Digital anticipates non-GAAP revenues of $2.7 billion (+/- $100 million), up 22% year over year.
Management projects non-GAAP earnings of $1.54 (+/- 15 cents).
It expects non-GAAP gross margin in the range of 41-42%. Non-GAAP operating expenses are expected to be between $370 million and $380 million.
How Have Estimates Been Moving Since Then?
Since the earnings release, investors have witnessed a upward trend in estimates review.
The consensus estimate has shifted 12.15% due to these changes.
VGM Scores
At this time, Western Digital has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with an F. However, the stock has a score of B on the value side, putting it in the second quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Western Digital has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.
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Western Digital Corporation (WDC): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).
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