It has been about a month since the last earnings report for Logitech (LOGI Quick QuoteLOGI - Free Report) . Shares have lost about 4.8% 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 its most recent earnings report in order to get a better handle on the important catalysts.

Logitech Lags Q1 Earnings & Sales Mark on Weak Demand

Logitech started fiscal 2023 on a disappointing note, reporting lower-than-expected results in the first quarter. The computer peripheral and software maker’s first-quarter non-GAAP earnings of 74 cents per share missed the Zacks Consensus Estimate of 82 cents and registered a year-over-year decline of 39%.

The dismal bottom line reflects lower revenues along with industry-wide elevated component costs and unfavorable currency movements. However, reduced operating expenses partially offset the negative impacts of the aforementioned factors.

Its first-quarter revenues plunged 12% year over year to $1.16 billion and fell short of the consensus mark of $1.18 billion. The decline can be attributed to a strong year-over-year comparison, where revenues grew 66% in the first quarter of fiscal 2022.

In the past year, Logitech benefited from the 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, the demand for gaming products shot up on the growing popularity of online video games and eSports amid the stay-at-home scenario. However, the demand softened due to the reopening of economic and business activities.

Segment Details

Logitech registered a sales decline across the majority of key product categories except for Pointing Devices, Keyboards & Combos and Video Collaboration. Revenues from Pointing Devices remained flat year over year at $183 million, while Keyboards & Combos’ sales grew 4% to $228 million. Video Collaboration’s sales increased 5% year over year to $246 million.

Gaming revenues plunged 16% year over year to $283 million. Sales from PC Webcams were down 46% to $59 million, while Tablet and Other Accessories’ sales dipped 16% to $67 million.

The Audio & Wearables segment’s sales declined 40% year over year to $69 million. Mobile Speakers’ sales decreased 22% to $22 million. The Other segment’s sales plunged 67% year over year to $2 million.

Margins & Operating Metrics

Non-GAAP gross profit decreased 19% to $464 million from the year-ago quarter’s $574 million. The non-GAAP gross margin contracted 380 basis points from the prior-year quarter to 40%. The year-over-year decline was mainly due to increased component costs, higher logistics expenses and unfavorable currency movements.

Non-GAAP operating expenses declined 6% to $319 million. As a percentage of revenues, non-GAAP operating expenses shot up to 27.5% from the year-earlier quarter’s figure of 25.9%.

Non-GAAP operating income plummeted 38% to $146 million from the $235 million reported in the year-ago quarter. The operating margin declined to 12.6% from 17.9% in the year-ago quarter. The decline in profits mainly reflects reduced revenues and gross margins, partially offset by lower operating expenses.

Liquidity and Shareholder Return

As of Jun 30, 2022, LOGI’s cash and cash equivalents were $1.1 billion compared with the $1.33 billion recorded in the previous quarter. Additionally, the company used $35.7 million in cash for operational activities in the first quarter.

In the first quarter of fiscal 2023, the company repurchased shares worth $121 million. Additionally, the company’s board of directors increased the share repurchase authorization to $1.5 billion from $1 billion.

Logitech revealed that it bought back stocks worth $697 million so far under the current authorization limit, which will end in July 2023. The company now has approximately $800 million remaining under the current authorization for share repurchases over the next 12 months.

Lowered Fiscal 2023 Guidance

Considering the current macroeconomic challenges, LOGI lowered its guidance for fiscal 2023. Logitech now expects sales to decline between 4% and 8% in constant currency instead of the earlier projection of growth in the 2 range.

Non-GAAP operating income is now anticipated in the range of $650-$750 million. Previously, the company projected non-GAAP operating income between $875 million and $925 million.

How Have Estimates Been Moving Since Then?

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

The consensus estimate has shifted -16.8% due to these changes.

VGM Scores

At this time, Logitech has a subpar Growth Score of D, though it is lagging a bit 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 D. 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. It's no surprise Logitech has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.