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Harman International Industries Inc. (HAR - Snapshot Report) reported non-GAAP earnings of 91 cents per share in the fourth quarter of 2013, which beat the Zacks Consensus Estimate by 4 cents. Earnings also increased 35.8% from the year-ago quarter.

Quarter Details

Revenues increased 8.4% from the year-ago quarter to $1.18 billion and were ahead of the Zacks Consensus Estimate of $1.14 billion. The year-over-year increase was primarily due to strong performance across its business segments.

Infotainment revenues increased 4.4% from the year-ago quarter to $641.0 million, primarily due to volume increases in the company’s recently launched platforms. During the quarter, the company gained five new Start of Production (SOP) programs from auto majors such as BMW, Chrysler/Fiat, Mercedes, Volkswagen, and Harley-Davidson (HOG - Analyst Report).

Lifestyle revenues increased 5.5% on a year-over-year basis to $348.0 million primarily due to robust sales in Harman’s home and multimedia products, which more than offset the soft car audio business.

Professional division revenues jumped 27.9% from the year-ago quarter to $220.0 million, primarily driven by strong performance by Martin Professional and strong audio product demand in the emerging markets.

Margins

Gross margin contracted 70 basis points (bps) from the year-ago quarter to 26.7% due to unfavorable product mix.

Harman’s selling, general and administrative (SG&A) expense as a percentage of revenues decreased 170 bps on a year-over-year basis. This was primarily due to improvement in sales. The lower-than-expected increase in SG&A expense positively impacted operating margins, which increased 100 bps at the end of fourth quarter of 2013.

Net income as percentage of revenues was 5.4% compared with 4.4% in the year-ago quarter.   

Balance Sheet & Cash Flow

As of Jun 30, 2013, cash and cash equivalents were $454.3 million compared with $432.2 million as of Mar 31, 2013. Long-term debt (including current portion) for the company stood at $285.0 million.

Recommendation

We believe that Harman’s new manufacturing capacities; growing product pipeline, solid patent portfolio, new awards as well as product launches will boost top line and profitability over the long term. Moreover, Harman continues to expand due to its partnerships with the likes of Apple (AAPL - Analyst Report). Additionally, program wins are expected to boost top line, going forward.

Meanwhile, Harman faces tough competition from Sony Corp. (SNE - Snapshot Report), which may hurt its profitability going forward. We expect the stock to remain range-bound due to the sluggish macroeconomic environment, particularly in Europe, in the near term.

Currently, Harman has a Zacks Rank #2 (Buy).

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