Western Digital Corp. Beat the Street, but Shares Fell Anyway

Shares of Western Digital (NASDAQ: WDC) took a cold bath on Friday. Following the release of the hard drive maker's fourth-quarter results, the stock fell as much as 8.5% in Friday's trading session.

What went wrong? Let's have a look.

By the numbers

Western Digital shipped 39.3 million hard drive units in the fourth quarter, a 2% year-over-year decrease. Average unit prices held steady at $63 per drive, and the average storage capacity per shipped drive rose 65% to land at 2.1 terabytes.

Breaking the company's sales down by device types, unit sales held relatively steady in the consumer electronics and enterprise markets. Notebook drive shipments fell by 10% but desktop sales increased by 13%.

An aggressive cost-cutting program reduced Western Digital's employee headcount by 7.2% compared to the year-ago tally, including a 5% cut and 3,600 positions eliminated in the fourth quarter alone.

Looking ahead, management posted the following guidance targets:

• Revenue should stop near $5.1 billion in the first quarter of fiscal year 2018, an 8% year-over-year jump.
• Non-GAAP earnings are estimated at roughly $3.30 per diluted share for the same period, up from $1.18 per share in the first quarter of fiscal year 2017.
• Full-year adjusted earnings were projected to exceed $12.00 per share. That would be at least a 30% increase over the 2017 total.

Wait a minute...those are good numbers. What's up with the price drop?

Yep, Western Digital met or exceeded Wall Street's targets on all counts, including the forward-looking guidance figures. If you want to nitpick, the next-year earnings target was set approximately 2% below the current Street view, but keep in mind that this was the presented as the bottom end of Western Digital's projections.

The only reasonable explanation for Friday's drop is profit-taking. Heading into the report, Western Digital shares had gained 75% in 52 weeks and 35% in 2017 alone. I can see how short-term traders might be tempted to take a few of their chips off the table after a run like that, no matter how good the reported and projected results might be.

I'm perfectly happy holding on to the Western Digital shares in my retirement portfolio. The hard drive market is healthier than it has any right to be, and this company is much better prepared for a sea change to solid-state storage than archrival Seagate Technology (NASDAQ: STX) ever was. The SanDisk buyout is already making a difference there, and that operation will only grow more important over the next few years.

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Anders Bylund owns shares of Western Digital. The Motley Fool also owns shares of Western Digital. The Motley Fool has a disclosure policy.