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Harman (HAR) Q2 Earnings, Revenues Top Estimates, Grow Y/Y

Highs and Lows Stock Data

Harman International Industries Inc.HAR reported second-quarter fiscal 2017 results wherein non-GAAP earnings per share of $2.22 and revenues of nearly $1.947 billion easily beat the respective Zacks Consensus Estimate of $1.87 and $1.903 billion. On a year-over-year basis, the metrics grew 20.7% and 9.9%, respectively.

On a non-GAAP basis, gross margin grew 50 basis points (bps) to 31.3%. Operating margin increased 120 bps to 11.7%. Non-GAAP EBITDA margin was up 110 bps to 13.8%.

Segment Details

Connected Car segment revenues grew 4% year over year to $769 million, driven by higher production. On a non-GAAP basis, gross margin at the segment improved 140 bps to 26.4% because of favourable product mix. Operating margin grew 80 bps to 12.7%.

Lifestyle Audio revenues increased 19% year over year to $765 million led by increased audio sales. On a non-GAAP basis, gross margin at the segment improved 160 bps to 34% while operating margin increased 310 bps to 17.2%.

Professional Solutions division revenues fell 3% from the year-ago quarter to $256 million. On a non-GAAP basis, gross margin at the segment fell 400 bps to 37.4%. Non-GAAP operating margin came down to 6.2% from 11.5% in the prior-year quarter.

Revenues at the company's Connected Services division were $173 million, up 13% year over year. On a non-GAAP basis, gross margin at the segment declined 290 bps to 31.3% while operating margin was up 300 bps to 15.2%

Harman International Industries, Incorporated Price, Consensus and EPS Surprise

Harman International Industries, Incorporated Price, Consensus and EPS Surprise | Harman International Industries, Incorporated Quote

Balance Sheet & Others

As of Dec 31, 2016, cash and cash equivalents were $683.4 million compared with $602.3 million as on Jun 30, 2016. Long-term debt was $766.6 million compared with $787.3 million as on Jun 30, 2016.

Harman also announced quarterly cash dividend of 35 cents per share, payable on Feb 22, 2017 to shareholders' as of Feb 6.

Our Take

Harman is one of the leading providers in the car infotainment space. The growing demand for connected cars bodes well for the company's cloud business. Apart from this, its strong manufacturing capacities, growing product pipeline, solid patent portfolio and accretive acquisitions are the other positives. Collaborations with the likes of Baidu BIDU , AT&T T , Brightstar Corp. and Alphabet GOOGL are likely to drive its top line.

Plus, its acquisition by Samsung should help boost its performance further. Last November, the Asian giant announced the takeover of Harman in an all cash deal worth $8 billion (or $112 per share representing 28% premium to Nov 11, 2016 closing price).

Following the takeover, Harman will function as an independent unit with CEO Dinesh Paliwal retaining his responsibilities. The acquisition remains on track for closure by mid 2017. It now awaits shareholders' approval. Harman will convene special shareholders' meet on Feb 17, 2017.

However, a major concern for the company is the sluggishness in the U.S. auto market. This is because Harman is exposed to some serious customer concentration risks with its top four customers accounting for approximately half of its revenues. In addition, rising competition and sluggish growth in its Professional Solutions segment remain headwinds.

Currently, Harman carries a Zacks Rank #4 (Sell). In the past one year, shares of Harman are up 39.18% compared with 43.20% gain witnessed by Zacks categorized Audio/Video Home Product industry.

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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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