Logitech Q2 Earnings Surpass Estimates - Analyst Blog

Logitech International SA (LOGI) reported second-quarter fiscal 2014 earnings of 20 cents per share, 300% above the Zacks Consensus Estimate of 5 cents and prior-year quarter earnings of 14 cents per share.

The year-over-year increase in earnings was due to solid performance in its growth categories, namely tablet accessories, PC gaming and wireless speakers. Moreover, Logitech experienced growth across all its operating regions in the Americas, Asia and EMEA (Europe, the Middle East and Africa) in tablet accessories. 

Revenues

Net sales in the second quarter were down 2.9% year over year and stood at $532 million, compared with $547.7 million in the year-ago quarter. Revenues exceeded the Zacks Consensus Estimate of $497 million by 7.0%. Improved sales performance in the company's growth categories such as tablet accessories, PC gaming and wireless speakers were partially offset by continued weak market conditions in Europe and decline in the global PC market.

Sales by Channel

The company's Retail sales contracted 2.4% year over year to $464.8 million. Overall growth in the category was partially offset by declines in PC audio, retail video, PC gaming, remote and other categories.

Sales for OEM division increased 2.2% while sales for LifeSize division declined 14.2%.

Sales by Product Division

Audio – Wearables & Wireless category was the best-performing retail product category in the reported quarter, with sales rising 34.2% year over year to $25.6 million. There was also a 6.6% rise in sales from Pointing devices to $130.7 million and Keyboards & Desktops sales grew 8.4% to $105.2 million.

Margins

Gross margin for the quarter improved by 120 basis points to 34.8% compared with 33.6% in the year-ago quarter. This increase in gross margin was due to product cost improvements across all PC-related categories, streamlining of product portfolio and cost savings due to restructuring.

Operating income for the reported quarter was $17.3 million, compared with an operating loss of $34.4 million in the prior-year quarter. Operating expenses were down 10.9% year over year to $334.5 million due to restructuring charges.

Balance Sheet & Cash Flow

As of Sep 30, 2013, cash and cash equivalents were $294.8 million, down 11.7 % from the year-ago level.

Net cash provided by operating activities was a negative $14.2 million at the end of the quarter versus $9.2 million in the prior-year period.

Looking Ahead

The company re-affirmed its outlook for fiscal 2014 and expects to generate sales of $2 billion and GAAP operating income of $50 million with a gross margin of approximately 34%. On a non-GAAP basis, operating income is expected to be $100 million, reflecting a 15% increase from the previously-expected $87 million.

Logitech believes that by divesting non-profit making assets, its costs will reduce and the focus will become more concentrated. Furthermore, management has identified a number of product categories that no longer fit well with the company's strategic direction. As a result, Logitech has initiated the process to divest its non-strategic categories and do away with extra costs by the end of 2014. The company is currently exiting its “Retail-Other” product from its Retail product category and has shortened key product cycles as well.

Currently Logitech has a Zacks Rank #2 (Buy). Other companies in the industry which are worth considering at the moment are Electronics for Imaging, Inc. (EFII), Immersion Corporation (IMMR) and Stratasys Ltd. (SSYS). Electronics for Imaging carries a Zacks Rank #1 (Strong Buy), while Immersion Corporation and Stratasys Ltd both have a Zacks Rank #2.