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Knowles (KN) Down 0.9% Since Last Earnings Report: Can It Rebound?

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A month has gone by since the last earnings report for Knowles (KN - Free Report) . Shares have lost about 0.9% 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 drivers.

Knowles Beats Earnings & Revenue Estimates in Q2

Knowles reported healthy second-quarter 2021 results, wherein both the bottom line and the top line beat the Zacks Consensus Estimate.

The company boasts a leading position across a broad range of growing end markets. It is focused on high value products to improve gross margin and operating leverage.

Net Income

On a GAAP basis, net income (from continuing operations) in the June quarter was $17.4 million or 18 cents per share against a net loss of $19.5 million or loss of 21 cents per share in the prior-year quarter. The improvement primarily resulted from an operating income.  

Non-GAAP net income came in at $30.1 million or 31 cents per share (above the high end of the company’s guidance range) against a net loss of $1.2 million or loss of 1 cent per share in the year-ago quarter. The bottom line beat the Zacks Consensus Estimate by 5 cents.

Revenues

Quarterly revenues grew 31.3% year over year to $199.8 million (above the mid-point of the company’s guidance), driven by strong demand across its Audio and Precision Devices segments. The top line surpassed the consensus estimate of $195 million.

Audio revenues grew 43.3% year over year to $149.8 million as Hearing Health sales doubled. Knowles witnessed robust MEMS (micro-electro-mechanical systems) microphone demand in multiple end markets. The segment’s gross profit was $63.3 million compared with $30 million in the prior-year quarter.

Precision Devices revenues increased 4.8% to $50 million with record bookings. The rise highlights a recovery in the medtech market and a bolt-on acquisition completed during the quarter. Gross profit was $20.8 million compared with $18.3 million in the year-ago quarter.

Other Details

Cost of goods sold increased to $116.1 million from $103.5 million year over year. Gross profit improved to $83.7 million from $47.8 million for a margin of 41.9% and 31.4%, respectively. Total operating expenses were $61.4 million compared with $60.2 million in the prior-year quarter. Operating income came in at $22.3 million against a loss of $12.4 million a year ago.

Cash Flow & Liquidity

During the first half of 2021, Knowles generated $61 million of cash from operations. Free cash flow was $45 million. As of Jun 30, 2021, the company had $94.2 million in cash and cash equivalents with $18.1 million of long-term operating lease liabilities.

Q3 Outlook

Knowles has guided for the third quarter of 2021. On a continuing operations basis, it expects non-GAAP revenues in the range of $227-$237 million. Non-GAAP gross profit margin is estimated in the range of 40-42%. Non-GAAP earnings are projected in the band of 38-42 cents per share.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates revision. The consensus estimate has shifted 11.11% due to these changes.

VGM Scores

At this time, Knowles has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with a C. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Knowles has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.


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