Harman International Industries Inc. HAR reported non-GAAP earnings of $1.22 per share in the first quarter of 2015, which missed the Zacks Consensus Estimate of $1.28. Earnings per share (EPS) increased 9% from the year-ago quarter.
Revenues
Revenues increased 4% from the year-ago quarter to $1.46 billion but lagged the Zacks Consensus Estimate of $1.48 billion.
Infotainment revenues rose 6% from the year-ago quarter to $779 million, primarily due to higher automotive production, production expansion into new car lines and higher take rate. During the quarter, Harman won $5.7 billion of new automotive awards. Car makers such as BMW and Daimler selected Harman’s technology in their car lines.
Lifestyle revenues declined 6% on a year-over-year basis to $441 million due to difficult comparisons as the company had received a one-time contract in the year-ago quarter. Robust sales in the company’s car audio business were a positive.
Professional division revenues increased 21% from the year-ago quarter to $242 million, primarily driven by last-quarter’s buyout of AMX that broadened the company’s product portfolio to enterprise automation and control and video switching.
During the reported quarter, Harman completed the acquisition Symphony Teleca and Redbend.
Margins
Gross margin of the company improved 346 basis points (bps) to 31.4% driven by favorable product mix in the quarter.
Selling, general and administrative (SG&A) expense as a percentage of revenues increased 258 bps to 21% on a year-over-year basis.
Non-GAAP operating margin expanded 10 bps to 7.8% in the quarter.
Net income declined 4% year over year to $70 million or 99 cents per share.
Balance Sheet & Cash Flow
As of Mar 31, 2015, cash and cash equivalents were $592.3 million compared with $581.3 million as of Jun 30, 2014. Total debt was $25 million at quarter end. The company had $602 million available under its revolving credit facility.
Guidance
For fiscal 2015, Harman expects revenues of approximately $6.0 billion, much higher than $5.3 billion in 2014. EBITDA is projected to be $695 million, much higher than $555 million in 2014.
Harman expects fiscal 2015 EPS to be $5.65 (up from the previous guidance of $5.25), lower than the Zacks Consensus Estimate of $5.86.
The guidance includes the impact from the Symphony Teleca and Redbend acquisitions that are expected to contribute approximately $100 million to revenues in the fourth quarter of 2015.
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 Apple AAPL and Google GOOG, which is a significant positive. However, intensifying competition from Sony Corp. SNE remains a concern.
Currently, Harman carries a Zacks Rank #3 (Hold).
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