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Logitech (LOGI) Posts Striking Q3 Earnings Beat; Shares Up

Switzerland-based computer peripherals company, Logitech International SALOGI continued its impressive streak of huge earnings beats for the fifth consecutive quarter, as its third-quarter fiscal 2017 adjusted earnings (including stock-based compensation expense adjustments) of 59 cents per share dwarfed the Zacks Consensus Estimate of 36 cents by nearly 64%.

The company's shares jumped 14.4% at one time in pre-market trading as investors cheered the remarkable results.

Also, on a non-GAAP basis, the company's earnings per share came in at 56 cents, up 36.6% on a year-over-year basis. The bottom line's remarkable year-over-year growth was driven by robust performance across the company's improving product categories.

Inside the Headlines

Net sales for the quarter rose an impressive 7.3%, year over year, to $666.7 million, surpassing the Zacks Consensus Estimate of $638 million. The entire growth was attributable to the company's Retail segment, which grew a remarkable 13%, year over year, in constant currency. This was the highest quarterly growth achieved by the segment ever. This was somewhat mitigated by revenues lost subsequent to the company's exit from OEM operations, which affected the year-over-year comparison.

The Retail category recorded sturdy, broad-based growth across most of its businesses, with four of them charting double-digit growth over third-quarter fiscal 2016. Gaming and Video Collaboration stood out as the strongest, followed by Mobile Speakers category.

Gaming surged 38% year over year to $107.2 million, driven by strength in PC gaming, fresh product launches and marketing initiatives. On the other hand, Video Collaboration grew 37% to $35.8 million on the back of double-digit growth from all three regions. Logitech is optimistic about its leadership position in webcam and audio technology as well as its channel expansion initiatives.

The Mobile Speakers unit continued charting its robust growth trajectory on the back of greater channel penetration and solid growth across EMEA region, growing 25% year over year to $106.6 million.

Audio-PC & Wearables also demonstrated remarkable growth, with a robust 17% increase in revenues, to $67.2 million on a year-over-year basis. Its numbers benefited from addition of the Jaybird family of wireless earbuds to its portfolio, although supply constraints restrained further upside which the company had projected.

Keyboards & Combos grew 8% year over year, while Pointing Devices and PC Webcams showed modest growth of 2% and 3%, respectively. This was the eleventh consecutive quarter of growth for Keyboards & Combos, while growth in PC Webcams wassupplemented by strong contribution from C922 Pro Stream webcam.

In addition, sales under the Home Control category increased 5% to $26.9 million, driven by the recent integration of Alexa into Logitech's Harmony Hub.

Tablet & Other Accessories space was the only segment which contracted, with its revenues plunging 31%, year over year, to $24.9 million, hurt by persistent sluggish product demand.

Logitech generated its highest non-GAAP gross margin in its history, of 37.4% (up 380 basis points year over year), bolstered by improved cost efficiency and increased scale.

Non-GAAP operating margin for the company expanded a remarkable 300 bps, year over year, to 14.9%, as non-GAAP operating income jumped 33.6% year over year to $99.1 million on top-line strength. The growth in operating profits reflects focused cost-control initiatives and disciplined operational spending as well.

Liquidity

As on Dec 31, 2016, Logitech's cash and cash equivalents were $513.6 million compared with $509 million as of Dec 31, 2015.

Guidance Raised

In light of such exceptional quarterly results, Logitech raised its guidance for fiscal 2017. It now expects to post non-GAAP operating income in the range of $225-$230 million (up from earlier guidance of $195-$205 million). Further, the company now projects its Retail sales to grow 12-13% in constant currency terms, up from prior projections of 8-10% growth.

Logitech International S.A. Price, Consensus and EPS Surprise

Logitech International S.A. Price, Consensus and EPS Surprise | Logitech International S.A. Quote

Looking Ahead

Logitech's earnings results highlight the company's impressive traction across its markets. It is confident of sustaining the momentum in the quarters ahead. Logitech has been benefiting from its sturdy business model that emphasizes on maximizing profit in PC peripherals and expanding into new business categories. Despite declining PC sales and macroeconomic uncertainty, the company seems to be on a sustainable growth curve.

The company anticipates the momentum in its Gaming category to continue in the quarters ahead on the back of a strong product portfolio. Apart from this, Logitech is streamlining its videoconferencing hardware business to focus on the new cloud-based offerings, which will position it well to leverage on the huge addressable market (estimated to be worth $20-$40 billion) in the near future.

Zacks Rank & Stocks to Consider

Logitech currently carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the broader sector include Exa Corp. EXA , Check Point Software Technologies Ltd. CHKP and Progress Software Corporation PRGS . While Exa and Check Point Software sport a Zacks Rank #1 (Strong Buy), Progress Software holds a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 Rank stocks here.

Exa Corporation develops, markets, sells, and supports software products, and provides professional services for simulation-driven design. The company has an excellent earnings surprise history, with an average beat of 68.1% for the trailing four quarters, beating estimates strongly all through.

Check Point Software offers software and combined hardware products and services for IT security worldwide. This company also has posted earning beats thrice in the trailing four quarters. It boasts an average beat of 6%.

Progress Software provides software solutions for various industries worldwide and has an average surprise of 4.3% for the last four quarters, having strongly beaten estimates twice.

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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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