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Dolby (DLB) Earnings Meet, Revenues Miss Estimates in Q2

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Disrupting the four straight quarters of beats, Dolby Laboratories, Inc. 's DLB adjusted earnings of 47 cents per share were on par with the Zacks Consensus Estimate in second-quarter fiscal 2017.

The company's non-GAAP earnings were down 23.2% to 63 cents on a year-over-year basis. A rise in operating expenses, interest expense, higher cost of revenues and a lackluster top-line performance proved to be a drag.

Inside the Headlines

Total revenue of $267.4 million fell short of the Zacks Consensus Estimate of $276 million and was down 2.5% on a year-over-year basis. The top line suffered mainly on account of the fact that a portion of revenues, which were expected in the fiscal second quarter, will be generated in the next quarter.

The company's Licensing revenues were down 3.1% to $241.6 million year over year. Consumer Electronics showed marginal improvement, driven by higher revenues from DMA and home theater equipment. However, the other three sub-businesses of licensing, namely, Broadcasting, PC and Mobile Licensing, gave a drab performance, thus weighing on overall revenues at this segment.

Licensing in "other markets" was up slightly in the reported quarter on the back of decent performance by Dolby Cinema. However, lower recoveries largely offset the improvement, thus thwarting growth.

In the fiscal second quarter, Product revenues came in at $20.7 million, up 3% on a year-over-year basis. Further, the Services segment witnessed year-over-year growth of 4.1% to $5.1 million. These segments continue to benefit from the increased number of clients interested in revamping theaters ahead of big releases.

Dolby Laboratories Price, Consensus and EPS Surprise

Dolby Laboratories Price, Consensus and EPS Surprise | Dolby Laboratories Quote

Liquidity

As of Mar 31, 2017, Dolby had cash and cash equivalents of approximately $532.5 million, up from $516.1 million as of Sep 30, 2016.

In addition, net cash provided by operating activities came in at $155.3 million, marginally down from the year-ago tally of $156.9 million.

Dividend

The company announced a cash dividend of 14 cents per share of Class A and Class B common stock, that will be payable on May 16, 2017, to shareholders of record as of May 8, 2017.

Guidance

Concurrent with the earnings release, Dolby issued the guidance for third-quarter fiscal 2017 earnings and revenues. The company estimates non-GAAP earnings in the range of 75-81 cents, while revenues for are estimated within $290-$305 million.

Moreover, the company projects non-GAAP gross margin in the 89-90% band. Similarly, operating expenses are likely to be between $158 million and $162 million, on a non-GAAP basis.

Dolby tweaked its guidance for fiscal 2017. Currently, the company foresees total revenues in the range of $1.06-$1.10 billion from the earlier range of $1.06-$1.09 billion. While revenue initiatives, such as Dolby Cinema, Dolby Voice and consumer imaging programs are expected to fuel growth, declining demand for PCs, DVD, Blu-ray and home theater equipment are expected to play spoilsport.

Additionally, the company expects Mobile licensing to be a key growth driver this year. The company also reiterated its non-GAAP operating expenses for fiscal 2017 at the $625-$635 million band.

Our Take

Dolby's second-quarter fiscal performance can be best described as mixed. The year-over-year decline in the top and bottom lines is unlikely to go down well with investors. However, the reaffirmed guidance is a saving grace. Presently, the company is focusing on fortifying its leadership position in audio solutions and introducing new audiovisual experiences.

Decent demand for products under its new businesses - Dolby Voice, Dolby Vision and Dolby Cinema - is likely to fortify its market hold. Moreover, the company's solid financial health and diligent capital allocation strategies bode well for growth. These factors also highlight Dolby's impressive long-term prospects.

Key Picks

Dolby currently carries a Zacks Rank #3 (Hold). Better-ranked stocks in the same space include Nintendo Co., Ltd. NTDOY , Central Garden & Pet Company CENT and H&R Block, Inc. HRB . All these stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today's Zacks #1 Rank stocks here .

Nintendo recorded a colossal 369.2% beat in the last reported quarter. Overall, it has a positive earnings surprise of 17.3% over the trailing four quarters.

Central Garden & Pet Company has a solid average earnings surprise of 120.5%, beating estimates each time over the trailing four quarters.

With three beats in the trailing four quarters, H&R Block has a positive average surprise of 7.7%.

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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 Nasdaq, Inc.


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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