Bear of the Day: Logitech (LOGI)

There were over 155 million smartphones sold worldwide each quarter in 2012. Total 2011 sales were a staggering 491.4 million units. About 40-50% of all phones being sold today are smartphones with touch screens and the trend is growing.

Tablets are also booming and changing the computer landscape. Apple (AAPL - Analyst Report) alone is expected to sell 55 million iPad minis, 33 million iPads and over 190 million iPhones in 2013. Samsung, Google and others will more than double those sales figures.

No matter what product you favor, they all have one thing in common; touch screens.

For companies like Logitech that sell mice, keyboards and other peripherals, the changing landscape, form factors and capabilities of the devices today are making business extremely tough.

Company Description
Logitech (LOGI - Analyst Report) designs, manufactures and markets innovative peripherals that provide people with easy access to the digital world. The Company's product family includes Internet video cameras, mice and trackballs, keyboards, audio and telephony products, interactive gaming devices and 3D controllers.

For a long time, they were not only improving our interaction with devices, but were a necessity for those looking for the best visceral interaction with their computers, video and audio. But with the advent of accelerometers, touch screens and headsets already packaged with the majority of devices, it seems that this peripheral manufacturer is hanging on the periphery of the industry.

Not the place you want to be for earnings growth.

Spotty Earnings & Cost Cutting
Logitech has been reporting poor results for the last few quarters, with the most recent being a loss of $1.24 per share in the most recent quarter with operating expenses of $765 million, up a whopping 43.2% year over year. Even if you exclude one-time extraordinary items, LOGI still missed expectations, reporting EPS of $0.10 versus the Zacks Consensus for $0.34, sending shares and confidence lower.

In response to weaker sales and earnings misses, the company has begun to divest its remote control and digital video security categories with further plans to discontinue other non-profitable products, such as speaker docks and console gaming peripherals, by the end of 2013. LOGI will also lay off 140 employees, or 5% of its workforce as part of its cost reduction plan.

Foggy Future
While Logitech is doing everything it can to cut costs and innovate, it may be some time before they find their way again. Analysts’ estimates have come down exponentially for not only the coming quarters, but also for FY2013 and FY2014. Zacks ESPs are negative across the board.

As a Zacks Rank #5, Logitech is ranked at the bottom 15% of the market in terms of performance and their Zacks industry rank is 163 out of 265, also a strike against them.

Logitech intends to generate savings amounting to approximately $16 to $18 million with their cost cutting initiatives. This amount is incremental to the $80 million saving already proposed from reducing operating costs and cost of goods sold for fiscal 2014.

But the turnaround may take a while and it seems that insiders agree. Borel Daniel (A Director at Logitech International SA) recently sold 150,000 shares at $6.67 per share for a total value of $1,000,500. This is after shares have tumbled 45% from their 52 week highs just 8 months ago.

While insider selling is not always an indication of hard times to come, it seems that Logitech may have a long road ahead of them. They report earnings on April 24th.

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