A developer of audio products and electronic systems,
Harman International Industries Inc.
) reported third quarter 2012 earnings of 79 cents per share, in
line with the Zacks Consensus Estimate. Earnings jumped 14.5%
year over year from 69 cents.
Revenues decreased 5.0% year over year to $998.2 million in
the third quarter of 2012, and was also short of the Zacks
Consensus Estimate of $1.09 billion. The sluggish year-over-year
growth was primarily attributed to weak performance across all
the operating segments.
Infotainment revenue decreased 7.0% year over year to $561.0
million. Both the Lifestyle division and Professional division
revenue declined 2.7% year over year to $292.0 million and $144.0
Sales in BRIC (Brazil, Russia, India and China) increased
23.0% year over year, primarily attributable to a 27.0% upside in
revenue from China.
Gross profit decreased 3.8% year over year to $278.3 million,
primarily due to declining revenue. However, gross margin
expanded 40 basis points ("bps") to 27.9% in the reported
Segment wise, Infotainment division gross profit declined
11.1% year over year while Lifestyle division gross profit
climbed 5.6% from the prior-year quarter. Professional revenue
remained flat on a year over year basis in the reported
Selling, general and administrative (SG&A) expense
decreased 6.7% year over year to $199.0 million in the third
quarter. However, SG&A, as a percentage of revenue declined
40 bps to 19.9% in the reported quarter driven by productivity
improvement across the company's cost base.
Operating income was up 4.1% year over year to $79.3 million.
Operating margin expanded 60 bps to 7.9% based on lower SG&A
Net income was $54.7 million, up 9.8% from $49.8 million in
the prior-year quarter.
As of September 30, 2012, cash and cash equivalents were
$698.6 million compared with $820.4 million as of June 30, 2012.
Liquidity was $1.2 billion, including a $541.0 million credit
We believe that Harman's expanding new manufacturing
capacities; growing product pipeline, solid patent portfolio, new
awards as well as launch of new products are expected to boost
top-line and profitability over the long term.
However, Harman continues to face tough competition from
), which may hurt its profitability going forward. We expect the
stock to remain range bound due to the sluggish macroeconomic
environment in the near term.
We maintain our Neutral recommendation on a long-term basis
(6-12 months). Currently, Harman has a Zacks #3 Rank, which
implies a Hold rating on a short-term basis (1-3 months).
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