NetApp (NTAP) Stock Plunges 9% After Hours Despite Strong Q1 Earnings Beat

Key Takeaways

• NetApp delivered Q1 fiscal 2027 sales of $2.03 billion, representing a 30% year-over-year increase and surpassing analyst projections of $1.84 billion
• The company’s adjusted earnings per share reached $2.58, significantly exceeding the $2.11 Wall Street consensus
• NTAP shares plummeted 8.92% in extended trading to $164.64 despite the strong quarterly performance
• Operating cash flow declined 25% compared to the previous year, while free cash flow decreased 35%
• The company increased its fiscal 2027 full-year revenue forecast to between $7.98 billion and $8.23 billion

NetApp (NTAP) delivered what management called its strongest fiscal year opening on Wednesday, announcing first-quarter sales of $2.03 billion alongside adjusted earnings per share of $2.58. While both metrics handily exceeded analyst expectations, shares still experienced a sharp decline in after-hours action.

NetApp, Inc., NTAP

The stock retreated 8.92% in extended trading to $164.64, following a 1.35% decline during regular market hours to $180.68. The after-hours selloff pushed shares approximately 10% below their pre-earnings level.

Sales expanded 30% versus the prior-year quarter, or 26% when adjusting for an additional week included in the reporting period. Adjusted earnings per share surged 66% year-over-year, demonstrating impressive operational leverage. The company exceeded EPS estimates by $0.47, representing a 22% upside surprise.

All-flash array sales jumped 47% annually to $1.31 billion. The hybrid cloud segment generated $1.82 billion in revenue, marking a 30% increase, while public cloud sales climbed 28% to $206 million. The company disclosed that it secured approximately 350 deals related to AI and data lake modernization initiatives throughout the quarter.

Operating profit increased 61% to $645 million. The operating margin expanded to 31.9%, representing a 6.1 percentage point improvement compared to the same period last year.

Behind the Post-Earnings Decline

While top-line results impressed, certain metrics within the financial report caused investor concern. Operating cash generation decreased 25% year-over-year to $503 million, while free cash flow contracted 35% to $401 million.

Inventory levels nearly doubled from $198 million to $375 million, with turnover rates running at less than half the velocity recorded a year earlier. Restructuring expenses ballooned to $56 million, up dramatically from just $2 million in the comparable period.

Company leadership acknowledged that the quarter benefited from both the additional week and expedited purchasing activity from a limited number of major customers. These factors likely sparked concerns regarding the sustainability of the current growth trajectory.

Updated Financial Outlook

NetApp elevated its fiscal 2027 full-year revenue projection to a range of $7.975 billion to $8.225 billion. The midpoint of $8.1 billion suggests approximately 17% annual growth and marks a $650 million upward revision from previous guidance.

For the second quarter, management forecasts revenue of $2.1 billion with a $75 million variance in either direction, and adjusted earnings per share between $2.54 and $2.64. Gross margin is anticipated to land in the 67% to 68% range.

Full-year adjusted EPS guidance was raised to $9.73 to $10.03, compared to the prior outlook of $8.70 to $9.00.

CEO George Kurian characterized the results as “a stellar start to the year,” emphasizing that the company surpassed its internal Q1 projections across all key metrics. CFO Wissam Jabre highlighted that earnings per share expansion outpaced revenue growth by more than two times, underscoring operational efficiency gains.

NTAP’s 52-week trading range spans from $93.69 to $209.06. Despite the extended-hours decline, shares remain substantially above their yearly bottom.

The company is currently working to integrate two recently completed acquisitions, DataPelago and JetStream. Management reported returning $302 million to shareholders during the quarter through $200 million in stock repurchases and $102 million in dividend payments.

The post NetApp (NTAP) Stock Plunges 9% After Hours Despite Strong Q1 Earnings Beat appeared first on Blockonomi.