Coherent Corp.(COHR)- Red Flags Still Flying in 4Q24
More one-time benefits investors should be watching
We originally expressed our concerns with COHR’s earnings quality in our 7/3 report Behind Coherent Corp’s Numbers. Following that, COHR reported adjusted 4Q24 EPS of $0.61 which was 1 cps ahead of consensus estimates. However, the non-GAAP tax rate came in at 26% vs. guidance for 16%-19%, which was a significant headwind of 8-11 cents. GAAP taxes were distorted in the quarter as the company incurred a $46 million charge to build up its tax valuation allowance against its deferred tax assets. The company shed very little light on the nature of the charge and did not even mention it on the call. The press release simply states in a footnote that the:
“Valuation allowance adjustment was related to an increase in valuation allowance related to certain deferred tax assets resulting from the Company’s cumulative GAAP net loss that is not recognized for non-GAAP purposes given the historical non-GAAP net earnings.”
Presumably, the company is now forecasting it will utilize less of its tax loss carryforwards before they expire which is often the result of lowering longer-term profit forecasts. Given that, we are surprised that analysts did not ask for more color on the call. The company added the $46 million (29 cps) charge back to its non-GAAP results.
Guidance for 1Q25 is for adjusted EPS of $0.53-$0.59. It is guiding to a 20%-23% non-GAAP tax rate, so the rate should stay relatively elevated. But, the sequential decline in the tax rate from 4Q24 should still add 3-6 cents to EPS. The company is also expecting slightly higher sequential sales and some small margin gain that would add 5-8 cents vs. 4Q24.
We continue to see one-time benefits to revenue and profit growth in the quarter which investors should be paying close attention to.
Let’s get behind the numbers…