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Harman's Q1 Earnings Beat Impressive

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Harman International Industries Inc. reported earnings of 95 cents per share in the first quarter of fiscal 2014, which comprehensively beat the Zacks Consensus Estimate by 11 cents. Earnings per share jumped 20.3% from the year-ago quarter.

Quarter Details

Revenues increased 17.4% from the year-ago quarter to $1.17 billion and were ahead of the Zacks Consensus Estimate of $1.12 billion. The year-over-year increase was primarily due to strong performance across its business segments.

Infotainment revenues jumped 14.1% from the year-ago quarter to $640.0 million, primarily due to volume increases in the company’s recently launched platforms. During the quarter, Harman won customer awards worth $1.3 billion from the likes of Volkswagen, Daimler AG, Geely Motors, Mazda and Ssangyong Motor Company.

The company will also provide 4G connectivity solutions to Mercedes-Benz car lines worldwide. Harman started production on new Toyota (TM - Free Report) programs in Europe during the quarter.

Lifestyle revenues soared 14.4% on a year-over-year basis to $334.0 million primarily due to robust sales in Harman’s home and multimedia product lines and car audio business.

The division won new awards from customers such as Toyota, Lexus and BMW. The company launched Kardon Logic 7 systems on BMW, compact car segment solution for Kia Sportage, as well as new products such as headphones, wireless audio and home entertainment systems at IFA trade fair in Berlin.

Professional division revenues jumped 36.8% from the year-ago quarter to $197.0 million, primarily driven by strong performance by Martin Professional and strong demand for audio products.

Most recently, Harman completed the acquisition of Duran Audio, which will expand the company’s product portfolio going forward.

In the first quarter, gross margin contracted 30 basis points (bps) on a year-over basis due to unfavorable product mix. Infotainment, Lifestyle and Professional segments gross margin declined 60 bps, 20 bps and 130 bps, respectively.

Selling, general and administrative (SG&A) expense as a percentage of revenues decreased 20 bps on a year-over-year basis, reflecting stringent cost control. The lower-than-expected decrease in SG&A expense positively impacted operating margin, which increased 10 bps in the quarter.

Net income margin was 5.7% compared with 5.5% in the year-ago quarter.    

As of Sep 30, 2013, cash and cash equivalents were $515.0 million compared with $454.3 million as of Jun 30, 2013.


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 - Free Report) . We believe that the new restructuring program will significantly improve profitability in the near term. This will provide Harman competitive edge over the likes of Sony Corp. (SNE - Free Report) going forward.

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

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