A month has gone by since the last earnings report for Logitech (LOGI Quick QuoteLOGI - 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 Logitech due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Logitech Tops Q4 Earnings Estimates

Logitech reported better-than-expected earnings results for the fourth quarter of fiscal 2022. The computer peripheral and software maker’s fourth-quarter non-GAAP earnings of 81 cents per share surpassed the Zacks Consensus Estimate of 73 cents. However, the bottom line registered a year-over-year decline of 44%.

The dismal bottom line reflects lower revenues and the company’s planned increased promotional spending, higher investment in retail point of sale marketing and industry-wide elevated component costs.

Its fourth-quarter revenues declined 17% year over year to $1.23 billion and fell marginally short of the consensus mark of $1.24 billion. The decline can be attributable to a strong year-over-year comparison, wherein revenues grew 108% in the fourth quarter of fiscal 2021.

In fiscal 2021, Logitech benefited from elevated demand for its video collaboration, keyboards & combos and pointing devices tools, mainly driven by heightening work-from-home and learn-from-home trends. Additionally, demand for gaming products shot up on the growing popularity of online video games and eSports amid the stay-at-home scenario.

Now, it seems that the sales growth is normalizing. To maintain normal growth, the company will have to develop and make innovative products and invest in sales & marketing initiatives.

Segment Details

The company registered sales decline across every key product category except Pointing Devices and Keyboards & Combos. Revenues from Pointing Devices remained flat year over year at $178 million, while Keyboards & Combos’ sales grew 5% to $231 million.

Gaming revenues decreased 2% year over year to $316 million. Video Collaboration’s sales plunged 37% year over year to $243 million. Sales from PC Webcams were down 42% to $84 million, while the Tablet and Other Accessories’ sales dipped 43% to $67 million.

The Audio & Wearables segment’s sales declined 37% year over year to $82 million. Mobile Speakers’ sales decreased 16% to $25 million. The Smart Home segment’s sales plunged 75% year over year to $2 million.

Margins & Operating Metrics

Non-GAAP gross profit decreased 30% to $498 million from the year-ago quarter’s $716 million. Non-GAAP gross margin contracted 610 basis points from the prior-year quarter to 40.5%. The year-over-year decline was mainly due to the year-ago quarter’s elevated levels, increased promotional spend, and higher component and freight rates.

Non-GAAP operating expenses declined 12.5% to $342 million. As a percentage of revenues, non-GAAP operating expenses shot up to 27.8% from the year-earlier quarter’s 25.5%.

Non-GAAP operating income plummeted 52% to $156 million from $325 million reported in the year-ago quarter. Operating margin declined 8.5% to 12.7% from the year-ago quarter’s 21.2%. The decline in profits mainly reflects Logitech’s planned increased investment in marketing and innovation to support its long-term growth.

Liquidity and Shareholder Return

As of Mar 31, 2022, LOGI’s cash and cash equivalents were $1.33 billion compared with $1.36 billion recorded in the previous quarter. Additionally, the company generated an operating cash flow of approximately $100 million during the fourth quarter and $298 million in full-fiscal 2022.

During the fourth quarter of fiscal 2022, the company repurchased shares worth $121 million. In fiscal 2022, it bought back shares worth $412 million and paid $159 million in dividends.

Lowered Fiscal 2023 Guidance

Considering the revenue and profit loss from the ongoing war between Russia and Ukraine, the company lowered its guidance for fiscal 2023. Logitech now expects sales growth in constant currency (CC) between 2% and 4%, instead of the earlier projection of a mid-single digit increase.

Non-GAAP operating income is now anticipated in the range of $875-$925 million. Previously, the company had projected non-GAAP operating income between $900 million and $950 million.

How Have Estimates Been Moving Since Then?

Analysts were quiet during the last two month period as none of them issued any earnings estimate revisions.

VGM Scores

At this time, Logitech has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

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

Outlook

Logitech has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.