A month has gone by since the last earnings report for Dolby Laboratories (DLB - Free Report) . Shares have lost about 4.9% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Dolby Laboratories 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 catalysts.
Dolby Q2 Earnings Outpace Estimates, Revenues Match
Dolby reported solid second-quarter fiscal 2019 financial results, wherein both the bottom line and the top line increased year over year. The audio, video and voice technologies’ licensor expanded the amount of content and devices in Dolby Vision and Dolby Atmos, and grew its footprint of Dolby Cinema.
On a GAAP basis, net income for the quarter was $73.4 million or 70 cents per share compared with $65.2 million or 61 cents per share in the year-ago quarter. The improvement was primarily driven by top-line growth.
Non-GAAP net income came in at $109 million or $1.04 per share compared with $78.1 million or 73 cents per share in the prior-year quarter. The bottom line beat the Zacks Consensus Estimate by 20 cents.
Quarterly total revenues were $338.3 million, up 12.9% year over year, primarily driven by growth in Licensing business. The top line came in line with the Zacks Consensus Estimate.
Revenues from Licensing were $310.3 million, up 14% year over year, led by growth in broadcast owing to higher revenues from consumer imaging, including Dolby vision and imaging patent portfolio coupled with higher recoveries. Sales from Consumer Electronics grew 18% year over year on the back of higher penetration and patent programs for a variety of products and customers. Mobile Devices sales were down about 2%, primarily due to timing of revenues. Sales from PC declined about 6% due to lower mix, while the same from Licensing in other markets were up nearly 6%, driven by Via and Dolby cinema, partly offset by lower recoveries in automotive.
Products and services revenues came in at $28 million, up 1.3%, driven by Dolby Cinema arrangements and growth in cinema products and Dolby Voice products.
Gross profit was $301.7 million compared with $268.7 million in the year-earlier quarter. Total operating expenses increased 8% year over year to $198.8 million, primarily due to higher sales and marketing costs. Operating income was $102.9 million compared with $84.6 million a year ago.
Cash Flow and Liquidity
During the first six months of fiscal 2019, Dolby generated $105.8 million of net cash from operating activities compared with $98 million in the year-ago period. As of Mar 29, 2019, the company had $726.6 million in cash and equivalents with $174.7 million of non-current liabilities.
Dolby has provided its estimates for third-quarter fiscal 2019. The company expects GAAP earnings per share in the range of 45-51 cents and non-GAAP earnings per share in the range of 62-68 cents, while revenues are anticipated to lie within $295-$315 million.
In addition, the company provided guidance for full-year fiscal 2019. It estimates total revenues to lie in the range of $1.24-$1.28 billion. While GAAP gross margin is expected to be around 87%, non-GAAP gross margin is projected to be around 88%.
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 8.44% due to these changes.
At this time, Dolby Laboratories has a subpar Growth Score of D, a grade with the same score on the momentum front. Charting a somewhat similar path, 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.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Dolby Laboratories has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.