It has been about a month since the last earnings report for Sonos (SONO Quick QuoteSONO - Free Report) . Shares have lost about 0.6% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Sonos 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.

Sonos Q2 Earnings Decline Y/Y, Revenues Increase

Sonos, Inc reported non-GAAP earnings of 26 cents per share in second-quarter fiscal 2022, which declined 16.1% on a year-over-year basis. The Zacks Consensus Estimate stood at 4 cents per share.

Quarterly revenues rose 20.1% (up 22.8% on a constant-currency basis or cc) year over year to $399.8 million, driven by robust demand for its products despite continued supply constraints stemming from the pandemic. The top line surpassed the consensus estimate by 10.6%.

Revenue Details

By product category, revenues for Sonos speakers were $317.7 million, up 19% from the prior-year quarter’s levels. The upside was driven by a positive full period impact from the launch of Roam.

Sonos system products revenues were $61.2 million, up 18%. Partner products and other revenues totaled $20.8 million, up 56% year over year.

Region-wise, revenues from the Americas came in at $238.2 million, up 23% year over year. Revenues from Europe, the Middle East and Africa were $128.4 million, up 12%. Revenues from the Asia Pacific rose 34% to $33.2 million.

Other Details

Gross profit was $179 million, up 8% from the prior-year quarter’s levels. Gross margin contracted 500 bps year over year to 44.8% mainly due to higher supply chain costs.

Total operating expenses were $168.8 million, up from $153.3 million, reflecting higher research and development and sales and marketing expenses.

Operating sincome was $10 million compared with $12.4 million in the year-ago quarter. Adjusted EBITDA totaled $46.9 million compared with $48.5 million in the prior-year quarter, with respective margins of 11.7% and 14.6%. The downside in adjusted EBITDA was caused by higher operating investments and gross margin contraction.

Cash Flow & Liquidity

For the fiscal second quarter, Sonos used $97.6 million of cash from operations. Free cash outflow was $106.9 million owing to inventory investments and new product launches.

For six months ended Apr 2, 2022, cash generated from operations was $82.3 million compared with $175.9 million in the comparable period of fiscal 2021. Free cash flow for the same period fell 57.2% to $66.7 million.

The company repurchased shares worth $43.1 million in the second quarter, taking the count to $74.5 million year to date. It has shares worth $75.5 million left under its existing $150-million authorization

As of Apr 2, 2022, the company had $606.7 million in cash and cash equivalents compared with $754.4 million as of Jan 1, 2022. The company has no debt.

Fiscal 2022 Outlook

Sonos expects revenues to increase 14-16% year over year in the range of $1.95-$2 billion. The gross margin is projected to be between 45.5% and 46% compared with the earlier guidance of 46% and 47%.

Adjusted EBITDA is estimated to be between $290 million and $310 million, with the margin ranging from 14.9% to 15.5%. Earlier, the company projected adjusted EBITDA to be between $290 million and $325 million, with 14.9-16.2% margin.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates.

The consensus estimate has shifted -52% due to these changes.

VGM Scores

Currently, Sonos has a poor Growth Score of F, a grade with the same score on the momentum front. 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 F. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Sonos has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

Performance of an Industry Player

Sonos is part of the Zacks Audio Video Production industry. Over the past month, Sony (SONY Quick QuoteSONY - Free Report) , a stock from the same industry, has gained 6.7%. The company reported its results for the quarter ended March 2022 more than a month ago.

Sony reported revenues of $19.49 billion in the last reported quarter, representing a year-over-year change of -7%. EPS of $0.77 for the same period compares with $0.81 a year ago.

Sony is expected to post earnings of $1.17 per share for the current quarter, representing a year-over-year change of -24.5%. Over the last 30 days, the Zacks Consensus Estimate has changed -8.6%.

Sony has a Zacks Rank #3 (Hold) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of C.