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Harman International Industries Inc. reported earnings of $1.09 per share in the second quarter of fiscal 2014, which comprehensively beat the Zacks Consensus Estimate by 11 cents. Earnings per share jumped 84.7% from the year-ago quarter.

Quarter Details

Revenues increased 25.8% from the year-ago quarter to $1.33 billion and were ahead of the Zacks Consensus Estimate of $1.25 billion. The year-over-year increase was primarily due to strong performance across its business segments.

Infotainment revenues jumped 28.0% from the year-ago quarter to $691.0 million, primarily due to volume increases in the company’s recently launched platforms. During the quarter, Harman won customer awards worth $725.0 million from the likes of VW Group, Chang’an, Geely, Yamaha, Suzuki, BMW, Jaguar/Land Rover.

Lifestyle revenues soared 15.6% on a year-over-year basis to $430.0 million primarily due to robust sales in Harman’s home and multimedia product lines and car audio business.

The company launched car audio systems in several vehicles, including a Lexicon system in the Hyundai Genesis and a JBL system in the Toyota Highlander.

Professional division revenues jumped 43.8% from the year-ago quarter to $197.0 million, primarily driven by strong performance by Martin Professional and strong demand for audio products.

In the second quarter, gross margin expanded 290 basis points (bps) on a year-over-year basis due to favorable product mix, higher sales volume on fixed production costs and lower costs due to productivity initiatives. Infotainment and Lifestyle gross margin increased 320 bps and 380 bps, respectively. Professional gross margin declined 130 bps from the year-ago quarter.

Selling, general and administrative (SG&A) expense as a percentage of revenues increased 10 bps on a year-over-year basis. The lower-than-expected increase in SG&A expense positively impacted operating margin, which increased 270 bps in the quarter.

Net income margin was 5.7% compared with 3.9% in the year-ago quarter.    

As of Dec 31, 2013, cash and cash equivalents were $518.6 million compared with $515.0 million as of Sep 30, 2013.

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 . We believe that the new restructuring program will significantly improve profitability in the near term. This will provide Harman a competitive edge over the likes of Sony Corp. , going forward.

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

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