It has been about a month since the last earnings report for Dolby Laboratories . Shares have lost about 8.8% in that time frame, underperforming the market.
Will the recent negative trend continue leading up to the stock's next earnings release, or is it due for a breakout? Before we dive into how investors and analysts have reacted 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.
Dolby Beats on Q3 Earnings and Revenues, View Intact
Dolby's third-quarter fiscal 2017 non-GAAP earnings per share came in at 86 cents, which beat the Zacks Consensus Estimate of 65 cents by 32.3% and was up 13.2% year over year. The earnings figure also steered past the projected range of 75–81 cents.
The earnings growth is attributable to lower effective tax rate and an impressive top-line performance.
Inside the Headlines
Total revenue of $305.7 million beat the Zacks Consensus Estimate of $297 million and was up 10.1% on a year-over-year basis. Healthy increase in revenues across all the three segments namely, Licensing, Products and Revenues contributed to the decent rise in the top line.
The company’s Licensing revenues were up 9.9% to $278.1 million year over year. Solid growth in Mobile devices (up 18%) and Consumer Electronics (up 15%) sales drove Licensing revenues. While, higher revenues in DMAs and sound bars drove Consumer Electronic sales, Mobile devices grew on the back of higher recoveries. Broadcast revenues increased 3%, thus adding to growth.
Licensing in “other markets” was up a robust 33% in the reported quarter thanks to decent performance by Dolby Cinema and higher recoveries.
In the fiscal third quarter, Product revenues came in at $22.6 million, up 9.7% on a year-over-year basis. Further, the Services segment rose 25.6% year over year to $4.9 million. Growing demand from exhibitors for digital cinema products increased the Products and Services sales.
During the reported quarter, operating margin of Dolby expanded 200 basis points (bps) to 31.3%.
As of Jun 30, 2017, Dolby had cash and cash equivalents of approximately $592.6 million, up from $516.1 million as of Sep 30, 2016.
In addition, net cash provided by operating activities came in at $292.5 million, up from the year-ago figure of $284.0 million.
Concurrent with the earnings release, Dolby announced a cash dividend of 14 cents per share of Class An and Class B common stock, that will be payable on Aug 15, 2017, to shareholders of record as of Aug 7, 2017.
Concurrent with the earnings release, Dolby issued the guidance for fourth-quarter fiscal 2017 earnings and revenues. The company estimates non-GAAP earnings in the range of 36–42 cents, while revenues are projected to lie in the band of $230–$250 million.
Moreover, the company projects non-GAAP gross margin in the 88–89% band. Similarly, operating expenses are likely to be between $158 million and $162 million on a non-GAAP basis.
For fiscal 2017, the company foresees total revenues of approximately $1.08 billion, at the midpoint of the total revenue guidance range of $1.06–$1.10 billion.
While revenue initiatives such as Dolby Cinema, Dolby Voice and consumer imaging programs are expected to fuel growth, declining demand for PCs, DVD, Blu-ray and home theater equipment are expected to play spoilsport.
Additionally, the company expects Mobile licensing to be a key growth driver this year. The company also reiterated its non-GAAP operating expenses for fiscal 2017 at $635 million.
How Have Estimates Been Moving Since Then?
Following the release, investors have witnessed a downward trend in fresh estimates. There have been five revisions lower for the current quarter. In the past month, the consensus estimate has shifted lower by 16.8% due to these changes.
Dolby Laboratories Price and Consensus
At this time, Dolby Laboratories's stock has a strong Growth Score of A, 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 B. If you aren't focused on one strategy, this score is the one you should be interested in.
Based on our scores, the stock is equally suitable for growth and momentum investors.
Estimates have been broadly trending downward for the stock. The magnitude of this revision also indicates a downward shift. Notably, the stock has a Zacks Rank #3 (Hold). We expect in-line returns from the stock in the next few months.