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Why Is Logitech (LOGI) Up 6.9% Since Last Earnings Report?

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A month has gone by since the last earnings report for Logitech (LOGI - Free Report) . Shares have added about 6.9% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Logitech due for a pullback? 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 Q2 Earnings Top Estimates, Revenues Lag

Logitech International reported second-quarter fiscal 2020 results, wherein the bottom line surpassed estimates, but the top line missed the same.

Non-GAAP earnings came in at 50 cents per share, surpassing the Zacks Consensus Estimate of 45 cents. The bottom line also improved from the year-ago quarter figure of 49 cents.

Net sales of $720 million missed the consensus estimate of $726 million, but rose 4% year over year in dollars and 6% in constant currency. The year-over-year revenue growth stemmed from consistent strength in Video Collaboration, and solid growth in PC peripherals category. However, macroeconomic headwinds weighed on the top line.

Segmental Details

Logitech’s Gaming segment’s sales increased 0.2% year over year to $161 million.

Video Collaboration witnessed an outstanding 57% rally to hit $89.6 million.

Mobile Speakers business’ sales, however, plunged 26% to $57.2 million. The segment had witnessed a strong second-quarter fiscal 2018 due to the launches of BOOM and MEGABOOM speakers, which made year-over-year comparison difficult.

Audio & Wearables segment witnessed 10% growth to reach $68 million. Smart Home segment sales grew 2% to $9.4 million.

Logitech’s Creativity and Productivity business comprises four sub-business lines — Keyboards and Combos, Pointing Devices, PC Webcams, and Tablet and Other Accessories. Revenues from Pointing Devices, Keyboards and Combos, and PC Webcams grew 3%, 5%, and 2% year over year, respectively. However, Tablet and Other Accessories dived 8%.

The Other segment, products of which the company is currently in the process of transitioning out of, registered an 81% year-over-year decline in the reported quarter.

Margins & Operating Metrics

Non-GAAP gross profit rose 6.4% year over year to $276.5 million. Non-GAAP gross margin increased 80 basis points (bps) to 38.4%.

Non-GAAP operating expenses jumped 6.7% to $187.1 million.

Non-GAAP operating income climbed 5.7% to $89.4 million. Operating margin of 12.4% expanded 20 bps.

Liquidity

As of Sep 30, 2019, Logitech’s cash and cash equivalents were $574.5 million compared with $597 million in the previous quarter.

Additionally, the company generated operating cash flow of $106.5 million in the fiscal second quarter compared with $36.5 million in the prior quarter.

Guidance

Logitech reaffirmed view for fiscal 2020. The company expects non-GAAP operating income to be $375-$385 million.

Revenue growth is anticipated within mid-high single digits in constant currency.
 

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended downward during the past month.

VGM Scores

At this time, Logitech has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with a C. Following the exact same course, 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

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.


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