The move surprised analysts and investors, given that it came after a report showing that fiscal-third-quarter adjusted earnings per share quintupled to 85 cents from 17 cents a year earlier. Revenue in the quarter ended April 3 rose 14%.
To be sure, GAAP EPS trailed forecasts, thanks to the coronavirus pandemic. The company swung to a profit of 6 cents a share from a year-earlier loss of $1.99. Analysts surveyed by FactSet had been looking for profit of 11 cents in the latest period.
“Retail was particularly affected by covid-19, in a typically seasonally weaker quarter,” the San Jose, Calif., company said in a statement.
“We generated $142 million in cash from operations during the fiscal third quarter of 2020 and ended the quarter with $2.9 billion of total cash and cash equivalents. We returned $149 million to shareholders through dividends and used $212 million to reduce debt.”
Western Digital is looking to preserve cash going forward. “We are suspending our dividend to strengthen our reinvestment in growth and innovation and to support our ongoing deleveraging efforts,” it said. “We will reevaluate our dividend policy as leverage ratios improve.”
The company’s long-term debt totaled $9.3 billion as of April 3, down from $10.2 billion a year earlier.
Western Digital shares recently traded at $40.41, down 12%. They have tumbled 39% over the past three months, compared with a 12% slide for the S&P 500.
The stock’s drop represents a buying opportunity, according to Baird analyst Tristan Gerra. He says the deleveraging is a plus and “positive macro trends [are] likely to extend beyond this quarter,” Barron’s reports.