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Logitech International SA (LOGI - Analyst Report) reported third-quarter 2014 earnings of 35 cents per share, 133% above the Zacks Consensus Estimate of 15 cents and 84% above the previous-year quarter earnings.

The year-over-year increase in earnings was due to solid performance in its growth categories, namely, tablet accessories, PC gaming and wireless speakers. Moreover, Logitech experienced growth in tablet accessories across all its operating regions in the Americas and Asia except EMEA (Europe, the Middle East and Africa). 

Revenues

Net sales in the third quarter were up 2.2% year over year to $627 million, compared with $614 million in third-quarter 2013. Revenues also exceeded the Zacks Consensus Estimate of $575 million by 9.0%. Improved sales performance in the company’s growth categories were partially offset by continued weak market conditions, especially in Europe and decline in the global PC market.

Sales by Channel

The company’s retail sales increased 3.9% year over year to $563.4 million. The retail category reported a 62% increase overall. Sales in the OEM division declined 2.1%, while sales in the Video conferencing division declined 18.6%.

Retail Category Sales by Product Division

Tablet & other accessories posted a robust 95.5% increase again, while Audio– Wearables & Wireless category was the second-best performing retail product category, with sales rising 78.8% year over year to $42.1 million. There was also a 24.6% rise in sales from PC gaming to $156.2 million.

Margins

Gross margin for the quarter improved to 34.1% compared with 34.0% in the third quarter of 2013. This increase in gross margin was due to product cost improvements across all PC-related categories, streamlining of product portfolio and cost savings due to restructuring.

Operating income for the reported quarter was $53.2 million, compared with an operating loss of $180.4 million in the third quarter of the previous year. Operating expenses were down by almost 59% year over year to $160.1 million due to cost savings attributable to restructuring charges.

Balance Sheet and Cash Flow

As of Dec 31, 2013, cash and cash equivalents were $379.8 million, down 17.9% from the year-ago level.

Net cash provided by operating activities was $93.7 million at the end of the quarter versus $95.1 million in the prior-year period.

Outlook

Driven by the strong performance of the company in the third quarter, Logitech has raised its full-year guidance for fiscal 2014. The company now expects sales a little below $2.1 billion, compared to the earlier guidance of $2.0 billion. This apart, non-GAAP operating income is expected to be in the range of $120 million to $125 million, compared to the previously announced $100 million.

Looking Ahead

Logitech is doing well in the tablet and gaming accessories market along with its portfolio of wireless speakers. The company reported earnings improvement, as expected, as it is reaping benefits from its restructuring and turnaround plans. Going forward, the company intends to focus on its core product line by divesting its non-strategic assets. However, the competitive markets and the consistently slumping desktop PC business are likely to be a headwind for the company.

Logitech currently holds a Zacks Rank #1 (Strong Buy). Other players in the computer peripheral sector, that look attractive at current levels, include LG Display Co., Ltd. (LPL - Snapshot Report), Synaptics Inc. (SYNA - Snapshot Report) and Analogic Corp. (ALOG - Snapshot Report). While LG Display Co., Ltd. and Synaptics Inc. carry a Zacks Rank #1, Analogic Corporation carries a Zacks Rank #2 (Buy).

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