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Daktronics Couldn't Light Up the Q2 Scoreboard

Digital-signage specialist Daktronics (NASDAQ: DAKT) reported earnings early Wednesday morning, covering the second quarter of fiscal year 2020. Daktronics fell short of Wall Street's estimates, though the results did fall within the scope of management's guidance.

The report triggered a sharp sell-off, driving the stock more than 10% lower in Wednesday's trading. Let's have a closer look at Daktronics' second-quarter results.

Daktronics's second-quarter report by the numbers

Metric Q2 2020 Q2 2019 Change Analyst Consensus
Revenue $175 million $173 million 1.3% $177 million
GAAP net income $7.3 million $8.6 million (15%) N/A
GAAP earnings per share (diluted) $0.16 $0.19 (16%) $0.18

Data source: Daktronics. GAAP = generally accepted accounting principles.

Three months ago, Daktronics CFO Sheila Andersen said that second-quarter sales would rise slightly as compared to the previous-year period, and that's exactly what happened. Andersen also reminded investors that actual sales can change from quarter to quarter due to the timing of individual deal signings and installation projects. Lumpy results are part of running a fairly small-scale business, especially when a single project can account for a large portion of the quarter's total sales.

Incoming orders added up to $151 million, equal to the order volume seen in the second quarter of fiscal 2019. The order backlog stopped at $182 million, down from $207 million at the end of the first quarter but up from $150 million a year ago.

Order volumes increased by 26% in the international segment and 24% in the high school park and recreation division. Those solid gains were undermined by 6% tighter order flows in the commercial market and 6% lower orders from live-events customers, as well as a 20% decline in the smaller transportation segment. Commercial and live events typically account for the lion's share of Daktronics' business, including a combined 56% share of this quarter's order flow.

A Daktronics-branded white helmet sits on a table in front of a large display showing a much bigger version of the same logo.

Image source: Daktronics.

Color commentary from the corner office

In a prepared statement, CEO Reece Kurtenbach said that he was "pleased" with this report, pinning the lower profits on increased project delivery costs and tariff expenses. Looking ahead, Kurtenbach encouraged investors to evaluate his company from a longer-term perspective:

The dynamic audio-visual communication systems market is expected to grow over the long term. We remain optimistic about our ability to grow profitably within this business. To support this growth, we are evaluating and engaging in operational improvements to reduce the effort of delivery and to enhance the quality of the experience for both customers and employees. We also continue to monitor the geopolitical situation and are responding accordingly, such as actions to offset tariff impacts.

Tariffs and economic issues were raised as areas of concern in the first quarter and not much has changed on that front. International business accounted for less than 15% of Daktronics' second-quarter revenues, but the company sources a lot of its materials from foreign markets including China.

One of the company's five manufacturing facilities is found in China. If Beijing can settle its differences with Washington, Daktronics' gross margins would widen in a hurry. In turn, that would take some pressure off the stock, which is trading near multiyear lows and more than 30% below its 52-week high.

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Anders Bylund owns shares of Daktronics. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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

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