During its last quarterly earnings call, officials at Harman
International Industries sounded confident that the maker of
audio and infotainment equipment would deliver record results for
its fiscal 2014.
Investors will get a chance to see how that prediction pans
out this week whenHarman (
) reports its fiscal fourth-quarter and full-year results.
The company makes and sells audio products, lighting
solutions, GPS systems and other gear to the consumer and
commercial markets, as well as digitally integrated audio and
infotainment systems for the automotive industry.
Harman's brands include JBL, AKG, Harman/Kardon, Infinity,
Mark Levinson, Revel, Logic 7, Lexicon and Selenium. It operates
in three segments: infotainment, lifestyle and professional.
On A Roll
Its products have been in high demand lately, helping the
company run off three straight quarters of accelerating sales
During its third quarter, which ended in March, Harman logged
a 32% year-over-year revenue increase and a 42% earnings gain for
its best performance in years.
On a Q3 conference call with analysts, CEO Dinesh Paliwal said
Harman raised its full-year revenue and earnings guidance to
reflect the strong Q3 results.
"As reflected in our revised guidance ... we are committed to
a strong finish (to the fiscal year)," he said, adding that he
expected "a record year for the company."
Harman officials could not comment for this story due to a
quiet period leading up to its Q4 earnings report.
The company is due to report those results before Thursday's
Analysts polled by Thomson Reuters expect earnings per share
of $1.21 for the fourth quarter and $4.38 for all of fiscal 2014,
which ended in June.
That's up from prior-year EPS of 91 cents and $3.07,
Revenue is seen rising 18% to $1.39 billion for the quarter
and 23% to $5.3 billion for the year.
The June quarter was a pretty eventful one for Harman.
On June 13 it closed its $365 million buyout of AMX, a maker
of hardware and software to improve the audio and visual elements
used in conference rooms, hotels, classrooms and entertainment
One benefit of that deal is that it extended Harman's
footprint in audio, lighting and control, which will "serve as a
platform for integration, innovation and growth," Paliwal said in
Meanwhile, concerns about Harman's competitive position were
raised in May whenApple (
) agreed to buy Beats Music, a subscription streaming music
service, and Beats Electronics, a maker of headphones, speakers
and audio software.
Beats was founded by hip-hop legend Dr. Dre and music producer
Jimmy Iovine. As part of the $3 billion deal, Iovine and Dr. Dre
joined Apple. Apple's financial and brand prowess, combined with
the marketability of high-profile music names like Iovine and
Dre, was initially seen by Wall Street as a threat to other
makers of headphones and audio gear, including Harman.
Harman's shares fell more than 1% to 106.34 on May 28, the day
the Apple-Beats deal was announced. Shares ofSkullcandy (
), another maker of headphones, dipped more than 2% that day.
But some industry analysts said the buyout would have a bigger
impact on music streaming services such asPandora Media (
) and Spotify.
The effect on Harman's stock price was only temporary.
The company's shares began to trend higher in late June and
reached a seven-year high of 118.60 on July 14. The stock
currently trades near 110.
Bustling Auto Market
Part of Harman's recent growth has come from sales of
infotainment systems to car manufacturers. On the Q3 conference
call, Paliwal said "a number of automotive manufacturers launched
new vehicles featuring Harman technology."
He cited BMW, which expanded its use of Harman's NBT
infotainment systems across additional car lines, as well
asDaimler 's (
) Mercedes Benz, which expanded its Harman infotainment systems
to its C-class vehicles.
In addition, Harman launched new programs across a number
ofVolkswagen (VLKAY) vehicles -- including Audi, Porsche and
Lamborghini -- and won new business withToyota Motor (TM) to
equip Scion vehicles with a second-generation infotainment system
in North America.
In the U.S., Harman has benefited from an increase in car
Last week, industry researcher Autodata said carmakers in the
U.S. sold 1.44 million vehicles in July, up 9.1% from a year
That boosted the seasonally adjusted annualized selling rate
to 16.48 million from 15.76 million vehicles in 2013.
In addition to foreign car companies, Harman provides systems
to U.S. carmakers such asFord (F) and Chrysler.
In a Q3 earnings report on Harman, Raymond James analyst Tavis
McCourt said Harman's "higher-than-expected infotainment revenues
were due to higher auto production, infotainment inclusion in
more midrange product lines and increasing take rates
"Take rate" refers to the percentage of new cars sold with
infotainment systems factory installed.
Harman should get a further lift from new car regulations in
the U.S., McCourt says.
In April, the National Highway Traffic Safety Administration
proposed a rule that would require all new consumer vehicles to
have a backup camera beginning in May 2016, with 100% adoption by
"The cost of including a dashboard-installed LCD screen for
viewing backup camera content makes the addition of a true
infotainment system a modest incremental investment even in the
lowest-tier vehicles," McCourt said. "This should provide another
catalyst to take rates in the future in lower-priced autos."