Fabrinet (NYSE:FN) shares fell 8.6% in pre-market trading on Tuesday as investors looked beyond stronger-than-expected fiscal fourth-quarter 2026 revenue and earnings and focused instead on weaker margins, negative free cash flow and a softer near-term profit outlook. The decline extended the negative reaction seen after Monday's closing bell, when the stock initially dropped around 7% in after-hours trading following the release of the results. Fabrinet comfortably exceeded analyst expectations at the headline level.
Fiscal fourth-quarter revenue reached $1.316 billion, ahead of the consensus estimate of approximately $1.27 billion. Non-GAAP earnings per share came in at $4.10, beating the $3.81 forecast by more than 7%. Despite those stronger figures, investors concentrated on signs of pressure elsewhere in the results, particularly around profitability and cash generation.
Fabrinet's gross margin declined by 30 basis points compared with the same quarter a year earlier, raising concerns about the profitability of the company's rapid expansion. Free cash flow also deteriorated significantly, turning negative at -$37 million during the quarter. The cash outflow largely reflected a sharp increase in capital expenditure as Fabrinet invests in additional capacity in Thailand and California.
While those projects are intended to support future growth, the associated spending weighed on near-term cash generation. Management's guidance for the first quarter of fiscal 2027 provided another reason for caution. The company's revenue outlook implies a midpoint of $1.405 billion, above the existing Wall Street consensus.
However, the forecast also indicates that earnings per share will decline sequentially because of seasonal factors. That prospect disappointed investors who had increasingly priced the shares for continued earnings momentum following the stock's strong performance over the past year. Fabrinet also identified uncertainty surrounding Thailand's new top-up tax regime and continuing component supply constraints as potential challenges to future performance.
The broader market environment amplified the negative reaction to Fabrinet's results. The NASDAQ was down 1.0%, while the S&P 500 declined 0.4%, reflecting a wider risk-off move that was particularly challenging for highly valued technology and artificial intelligence infrastructure stocks. Fabrinet entered its earnings release trading at a substantial premium to its own historical valuation levels following a significant rally from its 52-week low of $272.49.
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