Harman Reports Stronger

Harman International Industries Inc.’s (HAR - Snapshot Report) first-quarter earnings beat the Zacks Consensus Estimate by 20 cents.
 
Revenues
 
Revenues of $757.4 million were up 13.4% sequentially and down 12.9% year over year. The sequential increase was driven by all segments except Professional, while the year-over-year decline was driven by all segments except Other.
 
The revenue contribution by segment was as follows—Automotive 72% (up 16.5% sequentially and down 12.0% year over year), Professional 16% (down 2.4% sequentially and 14.2% year over year), Consumer 11% (up 20% sequentially and down 17.6% year over year) and Other, which includes the QNX operating system 1% (up 12.5% sequentially and flat year over year).
 
Operating Results
 
The pro forma gross margin for the quarter was 26.4%, up 494 basis points (bps) sequentially and down 142 bps from the year-ago quarter. The sequential increase was largely on account of higher volumes, while the decline from the year-ago period was on account of lower sales, which resulted in relatively lower factory utilization, as well as unfavorable product mix.
 
Operating expenses of $194.6 million were higher than the previous quarter’s $177.1, but lower than the year-ago quarter’s $209.5 million. The operating margin was 0.7%, up 577 bps sequentially and down 3.1 bps from the year-ago quarter. The sequential improvement in the operating margin was almost entirely on account of lower COGS as a percentage of sales, although lower SG&A also contributed.
 
Excluding the impact of restructuring charges, goodwill impairment charges and the associated tax impact, the pro forma net loss was $1.9 million or -0.3% net loss margin, compared to net loss of $26.2 million or 3.9% in the previous quarter and net income of $21 million or net income margin of 2.4% in the year-ago quarter. Including the special items, the GAAP EPS was 14 cents, compared to -$1.05 in the June 2009 quarter and 36 cents in the September quarter of last year.
 
Balance Sheet
 
Inventories were up 9.3%, yielding inventory turns of 6.1X. Days sales outstanding (DSOs) went up from 57 to around 61, mainly due to the pickup in sales. The company ended with cash and short term investments of $540.2 million, down $50.4 million during the quarter.

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