Dolby Laboratories, Inc. DLB reported unimpressive second-quarter fiscal 2020 (ended Mar 27, 2020) results, with the top and the bottom line missing the Zacks Consensus Estimate. However, higher Licensing revenues along with increased adoption of Dolby Atmos and Dolby Vision technology contributed to its quarterly performance.
On a GAAP basis, net income was $88.5 million or 86 cents per share compared with $73.4 million or 70 cents per share in the year-ago quarter. The year-over-year increase in earnings was primarily driven by top-line growth and lower income tax provision. However, the bottom line missed the Zacks Consensus Estimate by 6 cents.
Non-GAAP net income came in at $106.6 million or $1.04 per share compared with $109 million or $1.04 per share in the prior-year quarter.
Dolby Laboratories Price, Consensus and EPS Surprise
Dolby Laboratories price-consensus-eps-surprise-chart | Dolby Laboratories Quote
Total GAAP revenues were $351.8 million, up 4% from $338.3 million in the year-ago quarter. The upside can be attributed to increase in the Licensing segment revenues. However, total revenues were $30 million below the midpoint of the guidance provided at the beginning of the quarter. The decline was primarily caused by the COVID-19 pandemic, which led to temporary business shutdowns and lower consumer activity globally. Moreover, the top line lagged the Zacks Consensus Estimate of $355 million.
Revenues from Licensing were $328.9 million, up 6% year over year, driven by higher revenues in Broadcast business. Markedly, Broadcast business witnessed a 5% year-over-year increase in revenues, driven by higher adoption of Dolby Vision and Dolby Atmos coupled with higher recoveries. Sales from Consumer Electronics increased 10%, driven by higher volume of Dolby Vision and Dolby Atmos technology. Revenues from Mobile Devices were up nearly 13% from prior-year quarter’s figure, driven by robust growth in patent programs. Sales from PC surged 11% year over year, mainly driven by higher recoveries. However, it was partially offset by lower volumes stemming from the coronavirus pandemic. Meanwhile, revenues from Other Markets fell nearly 16% owing to a decline in revenues from Dolby Cinema coupled with lower recoveries in automotive.
Products and services revenues came in at $23 million, down 17.9% year over year. The downside was primarily caused by the impact of COVID-19 pandemic on the Cinema business.
Gross profit in the fiscal second quarter was $315 million compared with $301.7 million in the year-earlier quarter. Total operating expenses increased 5.2% to $209 million, primarily due to higher general and administrative charges. Operating income was $105.9 million compared with $102.9 million in the year-ago quarter.
Cash Flow and Liquidity
Dolby generated $96.9 million of net cash from operating activities in the quarter compared with $105.8 million in the year-ago quarter. As of Mar 27, the company had $724.9 million in cash and equivalents with $178.8 million of non-current liabilities.
Q3 Guidance Issued & 2020 Guidance Withdrawn
Despite uncertainties pertaining to the ongoing virus outbreak, Dolby has provided guidance for third-quarter fiscal 2020. The company expects GAAP earnings per share in the range of 1-18 cents and non-GAAP earnings per share in the range of 18-35 cents, while revenues are anticipated to be $225-$250 million. Moreover, unit volume shipments across various end markets and devices are likely to be lower by 15-25%. On a GAAP basis, operating expenses are expected in the $191-$201 million band, whereas on a non-GAAP basis, operating expenses are anticipated in the range of $170-$180 million.
However, due to certain macroeconomic factors like unemployment and supply chain disruptions coupled with the current turmoil of the deadly pandemic on global financial markets, Dolby is unable to provide a definitive financial outlook for fiscal 2020. Consequently, the company has withdrawn its previous guidance for 2020. Although its licensing as well as products and services revenues are likely to be affected by the catastrophic impact of coronavirus, Dolby is committed to support business operations in this crisis.
Zacks Rank & Stocks to Consider
Dolby currently has a Zacks Rank #3 (Hold).
Some other better-ranked stocks in the broader industry are Emerald Expositions Events, Inc. EEX, Vista Outdoor Inc. VSTO and Panasonic Corporation PCRFY. While Emerald Expositions and Vista Outdoor sport a Zacks Rank #1 (Strong Buy), Panasonic carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Emerald Expositions’ bottom line surpassed the Zacks Consensus Estimate thrice in the last four quarters. The company has a trailing four-quarter positive earnings surprise of 3.4%, on average.
Vista Outdoor’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 23.1%, on average.
Panasonic’s bottom line surpassed the Zacks Consensus Estimate in the last four quarters. The company has a trailing four-quarter positive earnings surprise of 46.4%, on average.
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