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Western Digital Corporation reports 39.0% EBITDA growth in 2018 and 8.1% Revenue growth

07/26/2018 • About Western Digital Corporation ($WDC) • By InTwits

Western Digital Corporation reported FY2018 financial results today. Here are the key drivers of the company's long term financial model:
  • Western Digital Corporation has low CAPEX intensity: 5 year average CAPEX/Revenue was 4.0%. At the same time it's in pair with industry average of 5.2%
  • CAPEX is quite volatile: $127m in 2018, $111m in 2017, $50m in 2016, $46m in 2015, $38m in 2014
  • In the last 5 years the company invested considerably less than D&A: $3,237m vs. $7,696m. In FY2018 this situation was still the same: CAPEX was 835 while D&A was 2,056
  • The company has highly profitable business model: ROIC is 15.3%
  • It operates with medium-size leverage: Net Debt/EBITDA is 1.1x while industry average is -2.8x
Below you can find a comprehensive analysis of the key data driving the company's performance and the stock price.

Revenue and profitability


Western Digital Corporation's Revenue increased on 8.1%. Revenue growth showed slowdown in FY18Q4 - it was 5.7% YoY. Despite revenue decline the EBITDA margin expanded. EBITDA Margin increased on 7.4 pp from 23.1% to 30.6% in 2018. During FY2014-FY2018 EBITDA Margin bottomed in FY2016 at 12.5% and was growing since that time.

Gross Margin increased on 5.5 pp from 31.8% to 37.3% in FY2018. SG&A as a % of Revenue showed almost no change in FY2018. During FY2014-FY2018 SG&A as a % of Revenue topped in FY2016 at 7.7% and was declining since that time. Stock Based Compensation (SBC) as a % of Revenue showed almost no change in FY2018. SBC as a % of Revenue grew at 0.25 pp per annum in FY2014-FY2018.

Net Income margin increased slightly on 1.2 pp from 2.1% to 3.3% in FY2018. During FY2014-FY2018 Net Income margin bottomed in FY2016 at 1.9% and was growing since that time. The efficient tax rate was 67.6% in FY2018.

Investments (CAPEX, working capital and M&A)


In FY2018 the company had CAPEX/Revenue of 4.0%. Western Digital Corporation's CAPEX/Revenue showed almost no change from FY2015 to FY2018. It's average CAPEX/Revenue for the last three years was 3.9%.

Accounts receivable as a % of Revenue showed almost no change in FY2018. Inventories as a % of Revenue increased slightly on 2.0 pp from 12.3% to 14.3% in FY2018. Accounts payable as a % of Revenue increased slightly on 1.0 pp from 16.5% to 17.5% in FY2018.

Western Digital Corporation has spent $100m on M&A in FY2018 which accounts for 0.48% of revenue.

Return on investment


The company operates at good ROIC (15.3%) while ROE is low (5.9%). ROIC increased on 7.9 pp from 7.4% to 15.3% in FY2018. ROE increased on 2.4 pp from 3.5% to 5.9% in FY2018. During FY2014-FY2018 ROIC bottomed in FY2016 at 2.3% and was growing since that time. During the last 5 years ROE bottomed in FY2016 at 2.4% and was growing since that time.

Leverage (Debt)


Debt level is 1.1x Net Debt / EBITDA and 2.0x Debt / EBITDA. Net Debt / EBITDA dropped on 0.6x from 1.7x to 1.1x in FY2018. Debt dropped on 15.0% while cash dropped on 21.2%.

Western Digital Corporation has good short term financial stability: Interest coverage ratio (ICR) is 5.4x. Western Digital Corporation has no short term refinancing risk: cash is higher than short term debt (2,796.1%).

Average interest expence charged on company's debt was 6.1% in FY2018.

Valuation and dividends


The company's trades at EV/EBITDA 4.7x and P/E 30.4x.

The company paid 87.9% of Net Income as dividends in FY2018. Dividends grew on average at 18.0% per annum in the last 5 years).

Management team


The company's CEO Stephen D Milligan "Steve" is a founder and has spent 3 years with the company. CEO total compensation was $19,738,381 in FY2018 which included $1,250,000 salary.

Insider ownership is 0.51%. Insider ownership didn't change in 2018.

At the end of financial year the company had 71,600 employees. The number of employees increased on 5.9%. Average revenue per employee in FY2018 was $288,366 and it increased on 2.1%.

Financial and operational results


FY ended 06/29/2018

Western Digital Corporation ($WDC) key annual financial indicators

mln. $201420152016201720182018/2017
P&L
Revenue15,13014,57212,99419,09320,6478.1%
Gross Profit4,3604,2213,4356,0727,70526.9%
SG&A8137889971,4451,4731.9%
EBITDA3,0352,7251,6204,0825,67339.0%
EBIT1,7911,6114661,9543,61785.1%
Interest expence49266847676-20.2%
Tax135112-893721,410279.0%
Net Income1,6171,46524239767570.0%
Stock Based Compensation156162191394377-4.3%
Balance Sheet
Cash4,8045,0248,1516,3545,005-21.2%
Accounts Receivable1,9891,5321,4611,9482,19712.8%
Inventory1,2261,3682,1292,3412,94425.8%
Accounts Payable1,9711,8811,8882,1442,2655.6%
Short Term Debt1254073,334233179-23.2%
Long Term Debt2,3132,14913,66012,91810,993-14.9%
Cash flow
Capex62861258457883544.5%
Dividends2593964645745933.3%
Acquisitions8232579,835100
Ratios
Revenue growth-1.4%-3.7%-10.8%46.9%8.1%
EBITDA growth21.4%-10.2%-40.6%152.0%39.0%

Gross Margin28.8%29.0%26.4%31.8%37.3%5.5%
EBITDA Margin20.1%18.7%12.5%21.4%27.5%6.1%
EBIT Margin11.8%11.1%3.6%10.2%17.5%7.3%
SG&A, % of revenue5.4%5.4%7.7%7.6%7.1%-0.4%
SBC, % of revenue1.0%1.1%1.5%2.1%1.8%-0.2%
Net Income Margin10.7%10.1%1.9%2.1%3.3%1.2%
CAPEX, % of revenue4.2%4.2%4.5%3.0%4.0%1.0%

ROIC17.1%14.1%2.3%7.4%15.3%7.9%
ROE19.3%16.2%2.4%3.5%5.9%2.4%
Net Debt/EBITDA-0.8x-0.9x5.5x1.7x1.1x-0.6x
Interest expence / Average debt2.0%2.7%5.6%6.1%0.4%
People
Insider ownership0.5%0.5%0.5%0.5%0.5%0.0%
Employees84,07276,44972,87867,60071,6005.9%
Revenue/Employee, th. $1801911782822882.1%

Western Digital Corporation ($WDC) key quoterly financial indicators

mln. $FY18Q1FY18Q2FY18Q3FY18Q4 YoY change
P&L
Revenue5,1815,3365,0135,117 9.9%9.2%7.8%5.7%
EBITDA1,4381,4901,4131,332 94.3%40.7%30.2%11.2%
Net Income681-82361756 -450.2%-75.4%170.0%
Balance Sheet
Cash6,8866,2724,9635,005 68.9%27.0%-12.2%-21.2%
Short Term Debt258274124179 230.8%112.4%-31.5%-23.2%
Long Term Debt12,87311,77711,07610,993 -1.4%-9.0%-14.2%-14.9%
Ratios
Gross Margin36.9%37.7%38.4%36.2% 8.6%6.4%5.7%1.5%
EBITDA Margin 27.8% 27.9% 28.2% 26.0% 12.1%6.3%4.8%1.3%
Net Income Margin 13.1% -15.4% 1.2% 14.8% 20.9%-20.2%-4.1%9.0%

Peers in Technology Hardware, Storage &


Below we provide Western Digital Corporation benchmarking against other companies in Technology Hardware, Storage & industry for the last 5 years. We show data for the top-5 companies by key financial metric together with the median value for all the companies in the industry.

Top companies by Revenue growth, %

Top 5 FY2014 FY2015 FY2016 FY2017 FY2018
Crossroads Systems Inc ($CRSS)-90.6%-35.5%-89.5%39,959.5%
Immersion Corporation ($IMMR)19.8%-9.9%-38.7%217.0%
Veritec Inc ($VRTC)-42.2%-28.0%-52.2%53.1%
Boxlight Corporation ($BOXL)-88.5%503.2%26.4%47.0%
Pure Storage, Inc. ($PSTG)308.2%152.4%67.9%38.6%
 
Median (30 companies)-16.9%-3.2%-4.3%1.5%4.3%
Western Digital Corporation ($WDC)-3.7%-10.8%46.9%8.1%


Top companies by Gross margin, %

Top 5 FY2014 FY2015 FY2016 FY2017 FY2018
Immersion Corporation ($IMMR)99.1%99.3%99.7%99.4%99.8%
Pure Storage, Inc. ($PSTG)43.5%55.5%61.9%65.9%65.5%
NetApp, Inc. ($NTAP)62.0%62.6%60.8%61.3%62.7%
Avid Technology, Inc. ($AVID)61.4%60.9%65.0%57.8%57.9%
Datasea Inc ($DTSS)39.3%54.4%
 
Median (29 companies)38.6%36.3%39.3%39.6%38.8%
Western Digital Corporation ($WDC)28.8%29.0%26.4%31.8%37.3%


Top companies by EBITDA margin, %

Top 5 FY2014 FY2015 FY2016 FY2017 FY2018
Immersion Corporation ($IMMR)12.3%9.0%-25.1%-127.0%48.6%
Apple Inc. ($AAPL)33.1%35.3%32.7%31.2%30.8%
NetApp, Inc. ($NTAP)16.9%16.7%11.3%15.4%22.9%
Seagate Technology PLC ($STX)19.3%21.1%11.3%16.7%20.0%
Hewlett Packard Enterprise Company ($HPE)11.8%10.5%25.4%12.7%14.4%
 
Median (29 companies)7.1%6.2%3.8%3.5%7.9%
Western Digital Corporation ($WDC)20.1%18.7%12.5%21.4%27.5%


Top companies by CAPEX/Revenue, %

Top 5 FY2014 FY2015 FY2016 FY2017 FY2018
Hewlett Packard Enterprise Company ($HPE)6.6%6.4%10.8%10.9%9.6%
Pure Storage, Inc. ($PSTG)28.7%24.2%8.9%10.4%6.3%
3D Systems Corporation ($DDD)3.5%3.4%2.6%4.8%5.9%
Apple Inc. ($AAPL)5.2%4.8%5.9%5.4%5.0%
Video Display Corp ($VIDE)0.5%0.5%0.9%1.5%3.9%
 
Median (29 companies)2.6%2.9%1.7%1.8%2.2%
Western Digital Corporation ($WDC)4.2%4.2%4.5%3.0%4.0%


Top companies by ROIC, %

Top 5 FY2014 FY2015 FY2016 FY2017 FY2018
Avid Technology, Inc. ($AVID)252.4%
Ionix Technology Inc ($IINX)23.9%204.5%
Immersion Corporation ($IMMR)7.6%5.8%-21.5%-138.9%96.8%
HP Inc. ($HPQ)8.0%8.7%15.8%60.8%72.9%
NetApp, Inc. ($NTAP)12.5%14.8%7.3%14.0%28.1%
 
Median (37 companies)5.9%5.0%-2.6%0.2%2.2%
Western Digital Corporation ($WDC)17.1%14.1%2.3%7.4%15.3%


Top companies by Net Debt / EBITDA

Top 5 FY2014 FY2015 FY2016 FY2017 FY2018
CPI Card Group Inc. ($PMTS)3.4x3.5x5.8x12.4x
NCR Corporation ($NCR)4.9x6.6x2.7x2.3x5.2x
Avid Technology, Inc. ($AVID)-0.7x3.1x1.7x5.6x4.8x
Xerox Corporation ($XRX)3.5x3.5x3.1x3.0x3.0x
Electronics for Imaging, Inc. ($EFII)-0.2x1.4x1.3x1.6x1.7x
 
Median (19 companies)-0.2x0.6x0.1x0.2x0.2x
Western Digital Corporation ($WDC)-0.8x-0.9x5.5x1.7x1.1x