Harman International Industries Inc. (
reported EPS of 59 cents in the second quarter of 2013, which
missed the Zacks Consensus Estimate by 29 cents.
Revenues decreased 6.3% year over year to $1.06 billion in the
second quarter of 2013, almost in line with the Zacks Consensus
Estimate. On a sequential basis, revenue increased 5.8%.
The sluggish year-over-year growth was primarily due to weak
performance across all the operating segments. Macro-economic
headwinds and slowdown in automotive sector in Europe had a
significant negative impact on Harman's top-line growth in the
Infotainment revenue decreased 10.0% year over year and 3.7%
sequentially to $540.0 million. The decline reflects lower
automotive production volumes in Europe, primarily due to weak
Harman announced a new division called Infotainment services
that will serve its customer base of 15 million. The division
will offer fourth generation long-term evolution (4G/LTE)
technologies to vehicles currently on road, cloud-based services
to cars and customer relationship management services.
Lifestyle revenue increased a modest 0.8% on a year-over-year
basis to $372.0 million. On a sequential basis, revenue jumped
27.4% in the reported quarter. The results were negatively
affected by lower European production volumes as well as the
clash between China and Japan.
Harman won four awards from customers such as
, Lexus and Subaru. Its solutions were also selected by BMW.
Harman's JBL was the first brand to ship 250,000 docking stations
iPhone 5 during the quarter.
Professional division revenue declined 8.9% year over year but
remained flat sequentially at $144.0 million. Delays due to
presidential elections in the United States and China and
economic slowdown were primarily blamed for the weak
Gross margin contracted 130 basis points ("bps") from the
year-ago quarter and 210 bps sequentially to 25.8% in the
reported quarter. Gross margins in the Infotainment and Lifestyle
segment declined on both year-over-year and sequential basis.
However, Professional segment margins improved in the reported
Selling, general and administrative (SG&A) expense as a
percentage of revenue increased 190 bps on a year-over-year basis
and 60 bps from the previous quarter.
The significant jump in SG&A negatively hurt operating
margins, which declined 310 bps from the year-ago quarter and 250
bps from the previous quarter.
Net income declined 31.6% year over year and 25.1%
sequentially to $40.9 million. EPS declined 29.1% from the
year-ago quarter and 25.3% from the previous
Balance Sheet & Cash Flow
As of Dec 31, 2012, cash and cash equivalents were $607.5
million compared with $698.6 million as of Sep 30, 2012.
Liquidity was $1.35 billion, including a $741.0 million credit
Harman forecasts sales to be in the range of $4.18 billion to
$4.25 billion for fiscal 2013. Operating profit is expected to be
in the range of $265.0 million to $280.0 million and EBITDA in
the range of $385.0 million to $400.0 million. EPS forecasted to
be in the range of $2.70 to $2.90.
Harman expects the first half of 2013 to remain under pressure
due to weak macro-economic condition in Europe.
The company also announced an operational restructuring
program including reduction of 500 jobs in high cost countries,
which will result in an annual savings of $30.0-$35.0 million
beginning fiscal 2014.
We believe that Harman's expanding new manufacturing
capacities, growing product pipeline, solid patent portfolio, new
awards as well as launch of new products will boost top-line and
profitability over the long term.
However, Harman continues to face tough competition from
Sony Corp. (
, which may hurt its profitability going forward. We expect the
stock to remain range bound due to the sluggish macroeconomic
environment particularly in Europe in the near term.
Currently, Harman has a Zacks Rank #3 (Hold).
APPLE INC (AAPL): Free Stock Analysis Report
HARMAN INTL IND (HAR): Free Stock Analysis
SONY CORP ADR (SNE): Free Stock Analysis
TOYOTA MOTOR CP (TM): Free Stock Analysis
To read this article on Zacks.com click here.