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Dolby (DLB) Q1 Earnings & Revenues Beat Estimates, Down Y/Y

Zacks Equity Research

Dolby Laboratories, Inc. DLB reported relatively lackluster first-quarter fiscal 2020 (ended Dec 27, 2019) results with year-over-year decrease in revenues and earnings on higher operating expenses. However, both the bottom and top lines surpassed the Zacks Consensus Estimate.

Net Income                                                

On a GAAP basis, net income was $48.8 million or 47 cents per share compared with $98.2 million or 93 cents per share in the year-ago quarter. The significant decline in earnings was primarily attributable to lower revenues, higher operating expenses and income tax benefit in the year-ago quarter. However, the bottom line surpassed the Zacks Consensus Estimate by 17 cents.

Non-GAAP net income came in at $65.5 million or 64 cents per share compared with $78.7 million or 74 cents per share in the prior-year quarter.

Dolby Laboratories Price, Consensus and EPS Surprise

Dolby Laboratories Price, Consensus and EPS Surprise

Dolby Laboratories price-consensus-eps-surprise-chart | Dolby Laboratories Quote

Revenues

Total revenues were $291.9 million, down from $302.4 million in the year-ago quarter, primarily due to decline in revenues in Licensing and Products and services segments despite higher adoption of Dolby Vision and Dolby Atmos technology. However, the top line surpassed the Zacks Consensus Estimate of $286 million.

Segmental Performance

Revenues from Licensing were $257.7 million, down 1% year over year, owing to lower revenues in Broadcast business. Sales from Consumer Electronics increased 12%, driven by higher adoption of Dolby Vision and Dolby Atmos coupled with higher volume. Mobile Devices represented 13% of total licensing. Sales from PC surged 38% year over year, mainly driven by higher recoveries with increased adoption of Dolby technologies, but the same from Licensing in other markets fell nearly 32% due to lower recoveries in automotive.

Products and services revenues came in at $34.2 million, down 18.8%, primarily due to the impact of hybrid deals in the Cinema business in the prior-year quarter.

Other Details

Gross profit in the fiscal first quarter was $254.6 million compared with $263.7 million in the year-earlier quarter. Total operating expenses increased 5.6% to $206 million, primarily due to restructuring charges. Operating income was $48.6 million compared with $68.7 million a year ago.

Cash Flow and Liquidity

In the first three months of fiscal 2020, Dolby generated $31.2 million of net cash from operating activities compared with $57 million in the year-ago quarter. As of Dec 27, 2019, the company had $741.4 million in cash and equivalents with $179.2 million of non-current liabilities.

Guidance

Dolby has provided guidance for second-quarter fiscal 2020. The company expects GAAP earnings per share in the range of 97 cents to $1.03 and non-GAAP earnings per share in the range of $1.15-$1.21, while revenues are anticipated to be $370-$390 million.

In addition, the company offered guidance for fiscal 2020. It currently estimates total revenues to be in the $1.30-$1.35 billion band. While GAAP gross margin is expected to be in the range of 87-88%, non-GAAP gross margin is projected to be 88-89%. The company expects GAAP earnings per share in the range of $2.64-$2.74 and non-GAAP earnings per share of $3.40-$3.50.

Zacks Rank & Stocks to Consider

Dolby currently has a Zacks Rank #4 (Sell).

Few top-ranked stocks in the broader industry are Sony Corporation SNE, The E.W. Scripps Company SSP and TEGNA Inc. TGNA, sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Sony surpassed earnings estimates in each of the trailing four quarters, the positive surprise being 86.9%, on average.

E.W. Scripps surpassed earnings estimates twice in the trailing four quarters, the positive surprise being 24.4%, on average.

TEGNA surpassed earnings estimates thrice in the trailing four quarters, the positive surprise being 6%, on average.

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