Coherent Corp. (COHR) Earnings & Analysis

Latest quarter

Coherent reported Q1 FY2027 revenue of $2.4 billion, up 49.9% from $1.6 billion a year earlier. Diluted earnings per share rose to $1.90 from $1.19. Revenue was within the company’s own guidance for the quarter.

The filing says Datacenter & Communications revenue increased 79% to $1,952 million, driven by AI data-center demand and higher communications volumes. Industrial revenue fell 15% to $419 million, primarily because Coherent had divested its aerospace and defense business and its Munich product division.

Coherent’s gross margin rose to 39.1% from 36.6%. The filing attributes the improvement primarily to lower product input costs, manufacturing efficiencies and better yields in Datacenter & Communications, alongside pricing and amortization benefits.

Free cash flow was −$868.2 million, compared with −$58.0 million a year earlier. The filing says operating activities used $93 million in cash, primarily because inventory increased to support revenue growth.

Adjusted EPS is the figure the consensus estimates, not the GAAP EPS above.

Revenue came in within or above the company’s guide in 2 of the last 2 quarters it guided.

What management said on the call

On the Q4 FY2026 call, held before the September quarter, CEO Jim Anderson said data-center demand was broad across customers and products. He said customer orders extended into calendar 2028 and long-term agreements ran through the end of the decade. Coherent said those agreements generally included both volume commitments and agreed pricing.

Anderson described indium phosphide production as the principal constraint on transceiver growth, rather than assembly and testing. “We have that capacity available,” he said of assembly and test. At the time, he expected Coherent to double internal indium phosphide output capacity year over year by the end of the then-current quarter and to more than double it again by the end of calendar 2027.

CFO Sherri Luther attributed Q4 gross-margin improvement to lower input costs, better manufacturing yields and efficiency, and pricing initiatives. She expected margin to continue improving as pricing optimization and cost improvements took effect. Luther also said capital spending was directed mainly toward manufacturing equipment and that the company’s data-center investments had a roughly 18-month payback period.

Anderson said optical circuit switching revenue had increased in Q4 and expected further growth as production expanded. He expected co-packaged optics to begin contributing to revenue growth in fiscal Q2, while initial multi-rail revenue was expected to ramp in the first half of calendar 2027. In Industrial, he expected growth to resume over coming quarters, led by semiconductor capital equipment.

Responding to Simon about a report concerning possible optical-transceiver import restrictions, Anderson called it “speculative at this point.” He said Coherent would compete for customers on technology and manufacturing and was open to increasing its US manufacturing footprint.

Guidance

For Q2 FY2027, Coherent expects revenue of $2.55 billion to $2.75 billion, compared with its previous Q1 guide of $2.2 billion to $2.4 billion. It expects non-GAAP gross margin of 40% to 42%, versus its prior Q1 range of 39.5% to 41.5%.

Coherent expects non-GAAP operating expenses of $430 million to $450 million and non-GAAP EPS of $2.28 to $2.48. Its previous Q1 ranges were $400 million to $420 million and $1.85 to $2.05, respectively. For FY2027, the company expects pro forma revenue growth to exceed 60%.