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Knowles (KN) Down 5.4% Since Last Earnings Report: Can It Rebound?
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It has been about a month since the last earnings report for Knowles (KN - Free Report) . Shares have lost about 5.4% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Knowles due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Knowles Q2 Earnings Miss Estimates, Revenues Down Y/Y
Knowles reported unimpressive second-quarter 2020 results, with earnings and revenues declining year over year. Soft Audio sales, supply-chain disruptions and end-market contraction with productivity headwinds stemming from the COVID-19 pandemic hurt the company’s quarterly performance.
Bottom Line
On a GAAP basis, loss from continuing operations came in at $19.5 million or a loss of 21 cents per share against net income of $5.9 million or 6 cents per share in the year-ago quarter. The year-over-year sharp decline was primarily caused by top-line contraction.
Quarterly non-GAAP net loss came in at $1.2 million or a loss of 1 cent per share against net income of $20.7 million or 22 cents per share in the prior-year quarter. The bottom line missed the Zacks Consensus Estimate by a penny.
Revenues
Quarterly revenues declined 25.8% to $152.2 million due to lackluster audio sales amid coronavirus-induced uncertainties, partially offset by robust sales of Precision Device solutions. However, the top line surpassed the Zacks Consensus Estimate of $145 million.
Segment-wise, Audio revenues declined 34.6% year over year to $104.5 million. This was mainly due to lower shipments of hearing health products and lower factory capacity utilization with softer end-market demand triggered by the global pandemic. Also, the segment’s gross margins witnessed a sequential fall of 530 bps due to a $3-million charge to write-off inventory with reduced investment in Intelligent Audio. Nevertheless, the company expects revenues in the Audio segment to increase more than 40% in the third quarter as market conditions gradually stabilize in Asia, Europe and the United States post COVID-19 crisis.
Revenues from Precision Devices increased 5.3% to $47.7 million, driven by robust demand for differentiated products across telecom and defense markets with higher shipments of MEMS microphones. However, it was partially offset by lower MedTech demand. The segment’s gross margins improved moderately owing to enhanced factory capacity utilization and labor productivity. The company expects the Precision Devices segment to witness a sequential fall of 10% due to lower shipments in the telecom market. Supported by a favorable product mix, the company also anticipates the segment to generate higher revenues from hearing health products in the upcoming quarter.
Other Details
Non-GAAP gross profit declined 37.1% to $49.1 million from $78.1 million for respective margin of 32.3% and 38.1%, respectively. The downtick was caused by lower capacity utilization and lower labor productivity due to the virus outbreak. Nevertheless, the company is committed to stabilize production facilities and abide by the government enacted workforce restrictions pertaining to the pandemic.
Cash Flow & Liquidity
With strong free cash flow of $19.7 million, Knowles generated $26.5 million of cash from operating activities during the quarter. As of Jun 30, the company had $168.3 million in cash and equivalents with $160.9 million of long-term debt.
Q3 Guidance Issued
Despite the current uncertainties associated with the COVID-19 turmoil, Knowles provided guidance for third-quarter 2020. The company expects revenues in the range of $185-$200 million, up 26% sequentially at the mid-point. Non-GAAP gross margins are anticipated in the range of 35-38%. Non-GAAP earnings are anticipated in the band of 17-23 cents per share. Notably, Knowles has undertaken several cost-saving initiatives with lower discretionary spending to support future market growth and mitigate the financial impacts of coronavirus pandemic to gain a robust liquidity position. The company is committed to deliver strong operating leverage and serve customer needs amid these trying times.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in estimates review.
VGM Scores
Currently, Knowles has an average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Knowles has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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Knowles (KN) Down 5.4% Since Last Earnings Report: Can It Rebound?
It has been about a month since the last earnings report for Knowles (KN - Free Report) . Shares have lost about 5.4% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Knowles due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Knowles Q2 Earnings Miss Estimates, Revenues Down Y/Y
Knowles reported unimpressive second-quarter 2020 results, with earnings and revenues declining year over year. Soft Audio sales, supply-chain disruptions and end-market contraction with productivity headwinds stemming from the COVID-19 pandemic hurt the company’s quarterly performance.
Bottom Line
On a GAAP basis, loss from continuing operations came in at $19.5 million or a loss of 21 cents per share against net income of $5.9 million or 6 cents per share in the year-ago quarter. The year-over-year sharp decline was primarily caused by top-line contraction.
Quarterly non-GAAP net loss came in at $1.2 million or a loss of 1 cent per share against net income of $20.7 million or 22 cents per share in the prior-year quarter. The bottom line missed the Zacks Consensus Estimate by a penny.
Revenues
Quarterly revenues declined 25.8% to $152.2 million due to lackluster audio sales amid coronavirus-induced uncertainties, partially offset by robust sales of Precision Device solutions. However, the top line surpassed the Zacks Consensus Estimate of $145 million.
Segment-wise, Audio revenues declined 34.6% year over year to $104.5 million. This was mainly due to lower shipments of hearing health products and lower factory capacity utilization with softer end-market demand triggered by the global pandemic. Also, the segment’s gross margins witnessed a sequential fall of 530 bps due to a $3-million charge to write-off inventory with reduced investment in Intelligent Audio. Nevertheless, the company expects revenues in the Audio segment to increase more than 40% in the third quarter as market conditions gradually stabilize in Asia, Europe and the United States post COVID-19 crisis.
Revenues from Precision Devices increased 5.3% to $47.7 million, driven by robust demand for differentiated products across telecom and defense markets with higher shipments of MEMS microphones. However, it was partially offset by lower MedTech demand. The segment’s gross margins improved moderately owing to enhanced factory capacity utilization and labor productivity. The company expects the Precision Devices segment to witness a sequential fall of 10% due to lower shipments in the telecom market. Supported by a favorable product mix, the company also anticipates the segment to generate higher revenues from hearing health products in the upcoming quarter.
Other Details
Non-GAAP gross profit declined 37.1% to $49.1 million from $78.1 million for respective margin of 32.3% and 38.1%, respectively. The downtick was caused by lower capacity utilization and lower labor productivity due to the virus outbreak. Nevertheless, the company is committed to stabilize production facilities and abide by the government enacted workforce restrictions pertaining to the pandemic.
Cash Flow & Liquidity
With strong free cash flow of $19.7 million, Knowles generated $26.5 million of cash from operating activities during the quarter. As of Jun 30, the company had $168.3 million in cash and equivalents with $160.9 million of long-term debt.
Q3 Guidance Issued
Despite the current uncertainties associated with the COVID-19 turmoil, Knowles provided guidance for third-quarter 2020. The company expects revenues in the range of $185-$200 million, up 26% sequentially at the mid-point. Non-GAAP gross margins are anticipated in the range of 35-38%. Non-GAAP earnings are anticipated in the band of 17-23 cents per share. Notably, Knowles has undertaken several cost-saving initiatives with lower discretionary spending to support future market growth and mitigate the financial impacts of coronavirus pandemic to gain a robust liquidity position. The company is committed to deliver strong operating leverage and serve customer needs amid these trying times.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in estimates review.
VGM Scores
Currently, Knowles has an average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Knowles has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.