Seagate earnings: first quarter of fiscal 2027

The quarter in brief

Seagate makes hard drives, the machines that hold much of the world's stored data, including in the large data centres that cloud companies run. In the three months to 2 October 2026, the first quarter of its 2027 financial year, it had a record quarter. Sales rose about 61% from a year earlier, to $4,233 million.¹

Profit grew much faster still: net income, the profit after everything, more than tripled to $1,761 million.¹ The company expects sales and profit to grow again next quarter.¹

The figures, as the company printed them

Against what analysts expected

Analysts, on the average of four forecasts, expected earnings per share of $7.17. Earnings per share is net income divided by the number of shares.² Seagate reported $7.59 on the standard accounting measure and $7.68 on its own adjusted measure, which leaves out certain costs such as paying staff in shares.¹ Both figures sit above the forecast, so on either view the quarter came in ahead of what analysts expected.

What the company expects

For the second quarter of its financial year, Seagate expects sales of $4.8 billion, give or take $100 million.¹ Even the bottom of that range would be a clear step up from this quarter's sales. It also expects earnings per share of $9.20, give or take $0.20, on its adjusted measure. That would be a further rise from this quarter.¹ Our figures do not set either number against anything the company had said to expect earlier, so these are best read as its fresh view rather than a revision.

The $9.20 leaves out the cost of paying staff in shares, which the company puts at $0.30 a share.¹ It has also not estimated other items, such as gains or losses on debt and investments or tax adjustments, which it says could be material.¹ Profit on the standard measure could therefore end up different from the $9.20 figure.

What would it take to get there? Management describes demand as getting stronger. It says its customers can see their needs far ahead, which it believes supports a growth phase lasting several years, driven by more data being created, kept and reused.¹ Its plan is to keep supply under control and to price on the value its drives deliver. It will add storage capacity through HAMR, its new drive technology that packs more data onto each disk.¹ It believes that approach brings profitable growth, strong cash generation and higher returns to shareholders over the long term. It attaches no price, cost or order figures to that belief.¹

The strong points

Seagate's factories and research carry heavy fixed costs, so once those are covered, much of each extra dollar of sales turns into profit. The 61% rise in sales did exactly that, and it lifted every profit measure in the quarter. Operating profit, the profit from running the business before interest and tax, roughly tripled to $2,064 million. It now equals 48.8% of sales, against 26.4% a year earlier.¹

Gross margin, what is left of each dollar of sales after the direct cost of making the drives, jumped to 57.3% from 39.4% a year ago.¹ That is the clearest sign that this is not only a story of shipping more drives. Management credits limiting supply and pricing on value. That suggests higher prices and a richer mix of products drove much of the gain, though our figures do not split price from volume.¹

Almost all of the profit came in as cash. The business brought in $1,690 million from its operations against net income of $1,761 million.¹ Free cash flow, the cash left after running the business and investing in it, was $1,479 million, more than three times last year's $427 million.¹ That came even though spending on property and equipment roughly doubled to $211 million.¹ It matters because it shows the leap in profit is real money rather than an accounting effect. That cash paid for $568 million returned to shareholders through dividends and buybacks, along with a dividend raised by about 3% to $0.76 a share.¹

The weak points

Seagate booked a $44 million loss from repaying debt early, up from $6 million a year ago.¹ Such losses have now appeared in each of the last four quarters, adding up to $189 million over twelve months, and the company leaves them out of its adjusted figures.¹ Paying down debt has a clear benefit, as interest expense roughly halved to $41 million. But a cost that keeps recurring is hard to treat as a one-off.¹

Cash on hand fell to $1,258 million from $1,704 million at the start of the year.¹ Debt repayment, buybacks and dividends took more than the business made. More money was also tied up as customers owed $283 million more and inventories grew.¹ Some of that is the natural cost of selling more, but it leaves a smaller cushion.

The cost of paying staff in shares rose about 48% to $77 million.¹ It is a real and growing cost, even though it sits outside the adjusted measure. The number of shares used to calculate earnings per share also rose, to 232 million from 226 million, which spreads profit across more shares.¹

What to watch

The signal is the price of hard drives and the spending plans of the big data-centre companies that buy them. So much of this quarter's profit rests on what Seagate can charge that the price of a drive is the hinge of the company's multi-year claim.

If drive prices hold, if the time customers must wait for drives stays long, and if those customers keep raising what they plan to spend on data centres, the claim stands up. Long waits and firm prices would mean buyers still want more than the industry makes, and rising spending plans would mean that appetite is paid for. If prices soften, waiting times shorten or customers start building up stocks of drives they have not yet used, it would point the other way. The boom would then look like a short squeeze on supply rather than lasting growth. Customer stockpiles matter in particular, because buyers who have over-ordered tend to stop ordering all at once. The next results are the next check on whether that holds.

Our verdict on the quarter

In all, a very strong report. Sales surged, profit grew far faster, and earnings came in ahead of analysts' forecasts. The company expects more growth in both sales and profit next quarter. Set against that, the weak points are real but modest. They trim the reported figures and the cash cushion without changing the shape of a quarter in which the business kept far more of every dollar it sold.

Notes

1. Seagate's results release, 27 October 2026: sec.gov. ↩
2. Nasdaq's earnings calendar, 27 October 2026. ↩