Harman International Industries Inc. (HAR) reported adjusted earnings of $1.31 per share in the first quarter of fiscal 2015, which beat the Zacks Consensus Estimate of $1.12. Earnings per share (EPS) jumped 38% from the year-ago quarter due to robust revenue growth across all the segments.
Revenues
Revenues increased 22% from the year-ago quarter to $1.43 billion and beat the Zacks Consensus Estimate of $1.35 billion. The year-over-year increase was primarily due to strong sales in the Infotainment segment.
Infotainment revenues jumped almost 17% from the year-ago quarter to $773 million, primarily due to expansion of the newly launched platforms, higher automotive production and increased take rates.
During the quarter, Harman won automotive awards worth $2 billion.
Lifestyle revenues improved 28% on a year-over-year basis to $426 million primarily due to robust sales in Harman’s home and multimedia product lines and car audio business.
During the quarter, Harman secured new car audio awards from Daimler, Porsche, Toyota and Subaru. Harman also launched new car audio systems in the Lexus RC, Volvo XC90, BMW i8 hybrid sports car and two smart car models. The division also launched 58 products at the IFA trade show in Germany.
Further, Harman entered into a strategic partnership agreement with Media Saturn Holdings, the largest consumer electronics retailer in Europe.
Professional division revenues increased 29% from the year-ago quarter to $254 million, primarily driven by expansion of product portfolio into video switching and enterprise automation due to the acquisition of AMX LLC. The division launched 28 products during the quarter.
Margins
In the reported quarter, adjusted gross margin expanded 160 basis points (bps) on a year-over-year basis due to higher sales volume on fixed production costs.
Selling, general and administrative (SG&A) expense as a percentage of revenues grew 64 bps on a year-over-year basis owing to higher marketing and integration expenses related to the recent acquisitions.
Infotainment operating margin expanded 200 bps, partly offset by 20 bps and 250 bps contractions, respectively, in Lifestyle and Professional operating margin.
Balance Sheet & Cash Flow
As of Sep 30, 2014, cash and cash equivalents were $397.8 million compared with $581.3 million as of Jun 30, 2014. Long-term debt was $210 million at quarter-end compared with $219.4 million as on Jun 30, 2014.
Our Take
We believe that Harman’s new manufacturing capacities, growing product pipeline, solid patent portfolio, new awards as well as product launches will boost the top line and profitability in 2015 and beyond.
Moreover, Harman continues to expand due to its partnerships with the likes of Appleand Google, which is a significant positive. However, intensifying competition from Sony Corp. remains a concern.
Currently, Harman carries a Zacks Rank #3 (Hold). Better-ranked stocks in this sector are Vuzix Corp. (VUZI), Audience, Inc. (ADNC) and Skullcandy, Inc. (SKUL). While Vuzix sports a Zacks Rank #1 (Strong Buy), Audience and Skullcandy have a Zacks Rank #2 (Buy).
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