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Knowles (KN) Q4 Earnings Lag Estimates, Revenues Up Y/Y

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Knowles Corporation (KN - Free Report) reported mixed fourth-quarter 2019 results, wherein the top line rose year over year but the bottom line declined.

Net Income

On a GAAP basis, earnings from continuing operations for the reported quarter were $21.1 million or 22 cents per share compared with $79.4 million or 87 cents per share in the year-ago quarter. The decline was primarily attributable to a significant income tax benefit in the year-earlier quarter. For full year 2019, earnings from continuing operations were $49.7 million or 53 cents per share compared with $65.6 million or 72 cents per share in 2018.

Quarterly non-GAAP net earnings were $33.3 million or 35 cents per share compared with $34.9 million or 37 cents per share in the prior-year quarter. The bottom line missed the Zacks Consensus Estimate by 5 cents.

Non-GAAP net earnings in 2019 improved to $101.6 million or $1.07 per share from $94.5 million or $1.01 per share a year ago driven by higher revenues and lower operating expenses.

Knowles Corporation Price, Consensus and EPS Surprise


Quarterly revenues rose 4.5% to $233.9 million from $223.8 million in the year-ago quarter. The increase was largely attributable to robust sales performance in the Ear and IoT markets, partially offset by soft trends in Mobile. However, the top line lagged the consensus estimate of $238 million.

Full-year 2019 revenues rose 3.4% to $854.8 million from $826.9 million on the back of higher Audio and Precision devices revenues amid weak handset market sales.

Segment wise, Audio revenues were up 2.8% year over year to $190.1 million in the quarter led by increased shipments of MEMS microphones and balanced armature speakers for the ear and IoT markets. However, softer demand for MEMS microphones and Intelligent Audio solutions for the high-end smartphone market partially offset the segment sales.

Revenues from Precision Devices increased 12.9% year over year to $43.8 million, primarily benefiting from 6% organic growth along with higher demand for differentiated products across multiple end markets with a tuck-in acquisition in the first quarter of 2019. However, it was partially offset by soft industrial demand for capacitators and shipment timings for mmWave filters.

Other Details

Non-GAAP gross profit declined to $90.9 million from $95.4 million for respective margins of 38.9% and 42.6%. This was below the company-provided guidance owing to operational challenges like unfavorable product mix, inventory adjustment and lower factory output.

Cash Flow & Liquidity

In 2019, Knowles generated $123.9 million of net cash from operating activities compared with $98.5 million a year ago. In the year, free cash flow was $82.7 million, up from $18.4 million in 2018.

As of Dec 31, 2019, the company had $78.4 million in cash and equivalents with $156.8 million of long-term debt compared with the respective tallies of $73.5 million and $158.1 million a year ago.

Q1 Guidance

Knowles has provided outlook for first-quarter 2020. Management expects revenues in the range of $160-$190 million with non-GAAP gross margin of 37.5-40.5%. Non-GAAP earnings are anticipated to lie within 8-16 cents per share.

Revenues from the Audio segment are expected to decline 4% year over year due to soft demand for Intelligent Audio products coupled with reduced MEMS microphone shipments to the China mobile market. Revenues from Precision devices are expected to rise 3% year over year on the back of increased shipments of mmWave filter to the defense and aerospace markets. However, it is likely to be partially offset by reduced shipments of high-end capacitors due to weak demand in industrial markets.

Zacks Rank & Stocks to Consider

Knowles currently has a Zacks Rank #3 (Hold). A few better-ranked stocks in the broader industry are ManTech International Corporation MANT, Perficient, Inc. PRFT and Plantronics, Inc. PLT. While ManTech and Perficient sport a Zacks Rank #1 (Strong Buy), Plantronics carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.  

ManTech surpassed earnings estimates twice in the trailing four quarters, the positive surprise being 4.6%, on average.

Perficient surpassed earnings estimates in each of the trailing four quarters, the positive surprise being 10.3%, on average.

Plantronics surpassed earnings estimates thrice in the trailing four quarters, the positive surprise being 35.6%, on average.

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