Car Systems Drive Growth At Audio Gear Maker Harman

By
A A A

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 ( HAR ) 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 growth.

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 open.

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, respectively.

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 centers.

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 a statement.

Meanwhile, concerns about Harman's competitive position were raised in May whenApple ( AAPL ) 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 ( SKUL ), 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 ( P ) 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 ( DDAIF ) 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 manufacturing.

Last week, industry researcher Autodata said carmakers in the U.S. sold 1.44 million vehicles in July, up 9.1% from a year earlier.

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 globally."

"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 May 2018.

"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."



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Investing Ideas

Referenced Stocks: HAR , AAPL , SKUL , P , DDAIF

Investor's Business Daily

Investor's Business Daily

More from Investor's Business Daily:

Related Videos

Stocks

Referenced

Most Active by Volume

36,586,989
  • $41.35 ▼ 2.29%
33,435,019
  • $42.20 ▼ 10.86%
31,919,424
  • $9.72 ▼ 8.30%
30,045,396
  • $26.49 ▼ 1.41%
29,014,873
  • $8.05 ▼ 8%
27,308,018
  • $14.66 ▼ 8.32%
23,704,242
  • $118.93 ▼ 0.06%
23,514,654
  • $17.04 ▼ 0.41%
As of 11/28/2014, 01:06 PM

Find a Credit Card

Select a credit card product by:
Select an offer:
Search
Data Provided by BankRate.com