Harman Surpasses Estimates - Analyst Blog

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A developer of audio products and electronic systems, Harman International Industries Inc. ( HAR ) reported third quarter 2012 earnings of 74 cents per share, ahead of the Zacks Consensus Estimate of 66 cents. Earnings increased 23.3% year over year from 60 cents per share.

Quarter Details

Revenues increased 15.6% year over year to $1.09 billion in the third quarter of 2012. Revenue also surpassed the Zacks Consensus Estimate of $1.06 billion. The strong year-over-year growth was driven by growth across all business segments.

Segment-wise, Infotainment revenue increased 15.1% from the previous-year quarter to $610.0 million. The Lifestyle division revenue jumped 20.3% year over year to $332.0 million and the Professional division witnessed a year-over-year growth of 7.7% to reach $153.0 million in the reported quarter.

Non-GAAP gross profit increased 17.2% year over year to $293.0 million. Gross margin increased 40 basis points (bps) to 26.8% in the quarter on the back of higher revenue base. Gross margin for the Infotainment division increased 400 bps to 23.0% in the reported quarter on a year-over-year basis. However, the same for Lifestyle and Professional division decreased 510 bps and 180 bps, respectively, in the reported quarter.

Selling, general and administrative (SG&A) expense increased 20.8% year over year to $226.0 million in the third quarter.

Operating income was up 6.3% year over year to $67.0 million. Operating margin contracted 60 bps to 6.1% due to higher SG&A expense. Net income was $53.0 million, up 23.3% year over year from $43.0 million in the prior-year quarter.

Balance Sheet

As of March 31, 2012, cash and cash equivalents were $640.6 million compared with $544.8 million as of December 31, 2011.

Recommendation

Harman posted solid third quarter figures on the back of robust sales from all its business segments. The Infotainment segment has done particularly well in garnering new orders from automakers. The company's expansion in the BRIC (Brazil, Russia, India and China) countries is expected to pave the way for achieving the projected revenue of $1.5 billion in the next three years from the region.

Moreover, Harman boasts a solid product pipeline that is supported by more than 4000 patents, and the company intends to roll out new infotainment products in order to further drive sales.

However, Harman continues to face tough competition from Panasonic Corp. ( PC ) and Sony Corp. ( SNE ), which may hurt its profitability going forward.

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).


 
HARMAN INTL IND ( HAR ): Free Stock Analysis Report
 
PANASONIC CORP ( PC ): Free Stock Analysis Report
 
SONY CORP ADR ( SNE ): Free Stock Analysis Report
 
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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 , Business , Stocks

Referenced Stocks: HAR , PC , SNE

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