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Knowles (KN) Q1 Earnings Beat Estimates, Revenues Down Y/Y
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Knowles Corporation (KN - Free Report) reported lackluster first-quarter 2020 results, with earnings and revenues declining year over year. Soft Audio sales and higher operating expenses coupled with lower capacity utilization in China stemming from the COVID-19 pandemic marred its performance.
Net Loss
On a GAAP basis, loss from continuing operations came in at $12.8 million or a loss of 14 cents per share compared with $2.7 million or a loss of 3 cents per share in the year-ago quarter. The year-over-year decline was primarily caused by lower revenues and higher operating expenses.
Quarterly non-GAAP net earnings were $3.2 million or 3 cents per share compared with $11.8 million or 13 cents per share in the prior-year quarter. The bottom line surpassed the Zacks Consensus Estimate by a penny.
Knowles Corporation Price, Consensus and EPS Surprise
Quarterly revenues declined 9.3% to $163.1 million, in line with the company’s updated accounting guidance. The year-over-year decline was mainly caused by lackluster audio sales, partially offset by robust sales of Precision Device solutions. However, the top line met the Zacks Consensus Estimate.
Segment-wise, Audio revenues declined 13.7% year over year to $120.1 million. This was due to weaker demand for hearing health products in Europe and United States coupled with tepid sales in IoT, Ear and Mobile markets. Markedly, United States and Europe, which accounts for nearly 85% of the global hearing aid market, witnessed significant slowdown in orders due to the pandemic. Moreover, the company expects the Audio segment to witness substantial decline in revenues in second-quarter 2020 due to softer demand of hearing health solutions.
Revenues from Precision Devices increased 5.7% from the first quarter of 2020 to $43 million, driven by robust demand for differentiated products across medtech, defense and electric vehicle end markets. With an optimistic view, the company expects the Precision Devices segment to witness significant operational improvements coupled with a sequential growth of more than 5% in the second quarter.
Other Details
Non-GAAP gross profit declined to $58.2 million from $69.9 million for respective margin of 35.7% and 38.9%, respectively. The downtick was caused by lower capacity utilization in China manufacturing facility and lower labor productivity due to the COVID-19 pandemic. Nevertheless, the company is committed to stabilize production facilities in China but anticipates lower factory utilization in certain Asian countries in the second quarter due to government enacted workforce restrictions pertaining to COVID-19 pandemic.
Cash Flow & Liquidity
Knowles utilized $2 million of cash from operating activities during the quarter. In the first quarter, the company witnessed its seasonal low due to reduced cash generation. As of Mar 31, 2020, the company had $147.8 million in cash and equivalents with $258.8 million of long-term debt. Knowles repurchased nearly 1 million shares at an average price of $15.06 in the first quarter.
Moving Ahead
Due to the current uncertainties pertaining to the COVID-19 upheaval, Knowles has not provided a definitive outlook for the second quarter of 2020. However, the company is undertaking several cost-saving initiatives to support future market growth and mitigate the financial impacts of coronavirus pandemic to gain a robust liquidity position in the near term.
The company is leaving no stone unturned to reduce operating expenses related to the Intelligent Audio business segment. In the last month, Knowles implemented a temporary 10% pay reduction for all salaried employees and a 15% reduction for CEO and board members. With effective cost-reduction measures, the company expects to save more than $20 million in 2020.
Ooma’s bottom line surpassed the Zacks Consensus Estimate in the last four quarters. The company has a trailing four-quarter positive earnings surprise of 124.1%, on average.
InterDigital’s bottom line surpassed the Zacks Consensus Estimate thrice in the last four quarters. The company has a trailing four-quarter positive earnings surprise of 62%, on average.
Opera’s bottom line surpassed the Zacks Consensus Estimate twice in the last four quarters. The company has a trailing four-quarter positive earnings surprise of 192.9%, on average.
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Knowles (KN) Q1 Earnings Beat Estimates, Revenues Down Y/Y
Knowles Corporation (KN - Free Report) reported lackluster first-quarter 2020 results, with earnings and revenues declining year over year. Soft Audio sales and higher operating expenses coupled with lower capacity utilization in China stemming from the COVID-19 pandemic marred its performance.
Net Loss
On a GAAP basis, loss from continuing operations came in at $12.8 million or a loss of 14 cents per share compared with $2.7 million or a loss of 3 cents per share in the year-ago quarter. The year-over-year decline was primarily caused by lower revenues and higher operating expenses.
Quarterly non-GAAP net earnings were $3.2 million or 3 cents per share compared with $11.8 million or 13 cents per share in the prior-year quarter. The bottom line surpassed the Zacks Consensus Estimate by a penny.
Knowles Corporation Price, Consensus and EPS Surprise
Knowles Corporation price-consensus-eps-surprise-chart | Knowles Corporation Quote
Revenues
Quarterly revenues declined 9.3% to $163.1 million, in line with the company’s updated accounting guidance. The year-over-year decline was mainly caused by lackluster audio sales, partially offset by robust sales of Precision Device solutions. However, the top line met the Zacks Consensus Estimate.
Segment-wise, Audio revenues declined 13.7% year over year to $120.1 million. This was due to weaker demand for hearing health products in Europe and United States coupled with tepid sales in IoT, Ear and Mobile markets. Markedly, United States and Europe, which accounts for nearly 85% of the global hearing aid market, witnessed significant slowdown in orders due to the pandemic. Moreover, the company expects the Audio segment to witness substantial decline in revenues in second-quarter 2020 due to softer demand of hearing health solutions.
Revenues from Precision Devices increased 5.7% from the first quarter of 2020 to $43 million, driven by robust demand for differentiated products across medtech, defense and electric vehicle end markets. With an optimistic view, the company expects the Precision Devices segment to witness significant operational improvements coupled with a sequential growth of more than 5% in the second quarter.
Other Details
Non-GAAP gross profit declined to $58.2 million from $69.9 million for respective margin of 35.7% and 38.9%, respectively. The downtick was caused by lower capacity utilization in China manufacturing facility and lower labor productivity due to the COVID-19 pandemic. Nevertheless, the company is committed to stabilize production facilities in China but anticipates lower factory utilization in certain Asian countries in the second quarter due to government enacted workforce restrictions pertaining to COVID-19 pandemic.
Cash Flow & Liquidity
Knowles utilized $2 million of cash from operating activities during the quarter. In the first quarter, the company witnessed its seasonal low due to reduced cash generation. As of Mar 31, 2020, the company had $147.8 million in cash and equivalents with $258.8 million of long-term debt. Knowles repurchased nearly 1 million shares at an average price of $15.06 in the first quarter.
Moving Ahead
Due to the current uncertainties pertaining to the COVID-19 upheaval, Knowles has not provided a definitive outlook for the second quarter of 2020. However, the company is undertaking several cost-saving initiatives to support future market growth and mitigate the financial impacts of coronavirus pandemic to gain a robust liquidity position in the near term.
The company is leaving no stone unturned to reduce operating expenses related to the Intelligent Audio business segment. In the last month, Knowles implemented a temporary 10% pay reduction for all salaried employees and a 15% reduction for CEO and board members. With effective cost-reduction measures, the company expects to save more than $20 million in 2020.
Zacks Rank & Stocks to Consider
Knowles currently has a Zacks Rank #3 (Hold). A few better-ranked stocks in the broader industry are Ooma, Inc. (OOMA - Free Report) , InterDigital, Inc. (IDCC - Free Report) and Opera Limited (OPRA - Free Report) . While Ooma and InterDigital sport a Zacks Rank #1 (Strong Buy), Opera carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Ooma’s bottom line surpassed the Zacks Consensus Estimate in the last four quarters. The company has a trailing four-quarter positive earnings surprise of 124.1%, on average.
InterDigital’s bottom line surpassed the Zacks Consensus Estimate thrice in the last four quarters. The company has a trailing four-quarter positive earnings surprise of 62%, on average.
Opera’s bottom line surpassed the Zacks Consensus Estimate twice in the last four quarters. The company has a trailing four-quarter positive earnings surprise of 192.9%, on average.
Breakout Biotech Stocks with Triple-Digit Profit Potential
The biotech sector is projected to surge beyond $775 billion by 2024 as scientists develop treatments for thousands of diseases. They’re also finding ways to edit the human genome to literally erase our vulnerability to these diseases.
Zacks has just released Century of Biology: 7 Biotech Stocks to Buy Right Now to help investors profit from 7 stocks poised for outperformance. Our recent biotech recommendations have produced gains of +50%, +83% and +164% in as little as 2 months. The stocks in this report could perform even better.
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