Harman International Industries Inc.
) reported earnings of 79 cents per share in the third quarter of
2013, which comfortably surpassed the Zacks Consensus Estimate by
16 cents. Earnings increased 6.8% from 74 cents per share in the
Revenues decreased 3.1% year over year to $1.06 billion in the
quarter, almost in line with the Zacks Consensus Estimate. The
year-over-year decline was primarily due to weak performance
across Infotainment and Lifestyle segments. Macro-economic
headwinds and slowdown in the automotive sector in Europe had a
significant negative impact on Harman's top line in the
Infotainment revenues decreased 6.7% year over year to $569.0
million. The decline reflects lower automotive production volumes
in Western Europe, primarily due to weak demand.
Lifestyle revenues decreased 1.5% on a year-over-year basis to
$327.0 million. The results were negatively affected by lower
automotive production volumes and lower neodymium surcharges.
However, strong demand for portable home and multimedia products
partially offset the year-over-year decline.
During the quarter, Harman won a number of awards from
customers such as
), Lexus, Kia, Mercedes and Ferrari.
Professional division revenues jumped 7.8% year over year to
$165.0 million, primarily driven by strong performance from
Martin Professional, which was acquired in Feb 2013.
Gross margin contracted 110 basis points ("bps") from the
year-ago quarter to 25.7%. The contraction was primarily due to
the negative impact of lower sales volume on fixed production
Infotainment gross margin declined 370 bps, which was
partially offset by a 230 bps expansion in Lifestyle gross margin
and 20 bps increase in Professional gross margin.
Selling, general and administrative (SG&A) expense as a
percentage of revenues decreased 110 bps on a year-over-year
basis. This was primarily due to higher recovery of customer
project engineering costs.
The lower-than-expected increase in SG&A expense
positively impacted operating margins, which remained flat at
6.2% at the end of third quarter of 2013.
Net income as percentage of revenues was 5.2% compared with
4.9% in the year-ago quarter.
Balance Sheet & Cash Flow
As of Mar 31, 2013, cash and cash equivalents were $432.2
million compared with $607.5 million as of Dec 31, 2012.
Liquidity was $1.18 billion, including a $743.0 million credit
Harman forecasts revenues to be in the mid-to-high end of its
earlier announced range of $4.175 billion to $4.250 billion for
fiscal 2013. Operating profit and EBITDA are expected to meet the
high end of the earlier announced guidance range of $265.0
million to $280.0 million and $385.0 million to $400.0 million,
Harman now expects earnings of $3.00 per share, slightly
upfrom its earlier guided range of $2.70 to $2.90.
We believe that Harman's 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. Moreover, Harman continues
to expand due to its partnerships with the likes of
Meanwhile, Harman faces tough competition from
),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).
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