A month has gone by since the last earnings report for Wolfspeed (WOLF). Shares have lost about 3.1% in that time frame, outperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Wolfspeed due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Wolfspeed Reports Loss in Q2 Earnings, Revenues Down Y/Y

Wolfspeed reported a second-quarter fiscal 2025 non-GAAP loss of 95 cents per share, narrower than the Zacks Consensus Estimate of a loss of $1.01 per share but broader than the year-ago quarter’s loss of 55 cents.

Revenues of $180.5 million decreased 13.4% year over year but surpassed the consensus mark by 0.63%. Mohawk Valley Fab contributed $52 million in revenues in the reported quarter.

Power Products accounted for 50.3%, while Materials Products contributed 49.7%. Power Products revenues decreased 15.7% year over year to $90.8 million. Materials Products revenues also decreased 10.9% year over year to $89.7 million.

Wolfspeed’s Operating Details

For the fiscal second quarter, Wolfspeed reported a non-GAAP gross margin of 2%, down from 16% reported in the year-ago quarter. Underutilization costs of $28.9 million negatively impacted gross margin in the reported quarter.

In the reported quarter, sales, general and administrative expenses were $51.1 million (28.3% of total revenues), down 21.3% year over year.

Research & development expenses (24.6% of total revenues) decreased 2% year over year to $44.4 million.

Wolfspeed incurred $22.8 million in factory start-up costs in the second quarter of fiscal 2025. These expenses arise from the construction and expansion of facilities not yet generating revenues but are expected to support future production.

The company incurred a non-GAAP operating loss of $105.2 million, wider than the operating loss of $70.8 million in the year-ago quarter.

WOLF’s Balance Sheet & Cash Flow

As of Dec. 29, 2024, WOLF had cash, cash equivalents and short-term investments of $1.40 billion compared with $1.69 billion as of Sept. 29, 2024.

Long-term debt was $3.38 billion as of Dec. 29, 2024, compared with $3.13 billion as of Sept. 29, 2024.

Free cash outflow was $598.1 million, comprising $195.1 million of operating cash outflow, $401.8 million of capital expenditures and patents spending of $1.2 million.

Wolfspeed’s 3Q25 Guidance

For the third quarter of fiscal 2025, Wolfspeed expects revenues in the range of $170-$200 million. Non-GAAP loss is expected between 88-76 cents per share.

It expects non-GAAP gross margin in the range of negative 3 to 7%. Non-GAAP operating expenses are expected to be $104-$99 million.

For the third quarter of fiscal 2025, the company expects to incur $72 million of restructuring-related costs, with $35 million in cost of revenues and $37 million in operating expenses.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended downward during the past month.

VGM Scores

Currently, Wolfspeed has a poor Growth Score of F, however its Momentum Score is doing a lot better with an A. However, the stock was allocated a grade of F on the value side, putting it in the fifth quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Wolfspeed has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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This article originally published on Zacks Investment Research (zacks.com).

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