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Dolby Laboratories, Inc. DLB reported impressive third-quarter fiscal 2020 (ended Jun 26, 2020) results, with the top and the bottom line surpassing the Zacks Consensus Estimate. Despite higher adoption of Dolby Atmos and Dolby Vision technology, lower licensing coupled with lower product and services revenues stemming from COVID-19 adversities marred quarterly performance.
On a GAAP basis, net income was $67.3 million or 66 cents per share compared with $39.6 million or 38 cents per share in the year-ago quarter. Despite top-line contractions, the year-over-year increase was primarily driven by lower operating expenses.
Non-GAAP net income came in at $87.5 million or 86 cents per share compared with $79.3 million or 76 cents per share in the prior-year quarter. The bottom line beat the Zacks Consensus Estimate by 59 cents.
Dolby Laboratories Price, Consensus and EPS Surprise
Dolby Laboratories price-consensus-eps-surprise-chart | Dolby Laboratories Quote
Total GAAP revenues were $246.9 million, down 18.3% from $302.2 million in the year-ago quarter. The decline was caused by the COVID-19 pandemic, which led to temporary business shutdowns and lower consumer activity globally. Nevertheless, the top line surpassed the Zacks Consensus Estimate of $232 million.
Revenues from Licensing were $235.1 million, down 13.5% year over year, due to lower revenues in Broadcast business. Despite higher adoption of Dolby Vision and Dolby Atmos, Broadcast business witnessed nearly 34% year-over-year decline in revenues owing to lower volume and recoveries stemming from COVID-19 pandemic. Sales from Consumer Electronics fell nearly 29% due to lower volume and recoveries. Revenues from Mobile Devices were up nearly 65% from prior-year quarter’s figure, driven by robust growth in patent programs. Sales from PC was down by about 4% year over year owing to lower recoveries. Meanwhile, revenues from Other Markets fell nearly 34% owing to a decline in revenues from Dolby Cinema coupled with lower gaming revenues.
Products and services revenues came in at $11.8 million, down 61.1% year over year. The downside was primarily caused by the impact of COVID-19 pandemic on the Cinema business as social distancing norms led to movie theatre closures.
Gross profit in the fiscal third quarter was $217 million compared with $262.5 million in the year-earlier quarter. Total operating expenses fell 19.9% to $182.9 million, primarily due to lower restructuring charges. Operating income was $34.1 million compared with $34.3 million in the year-ago quarter.
Cash Flow and Liquidity
During the first nine months of fiscal 2020, Dolby generated $231.2 million of net cash from operating activities compared with $197.2 million in the year-ago quarter. As of Jun 26, the company had $855.1 million in cash and equivalents with $120 million of non-current liabilities.
Q4 & Full Year 2020 Guidance Issued
Despite uncertainties pertaining to the ongoing virus outbreak, Dolby provided guidance for fourth-quarter fiscal 2020 and full year 2020.
For fourth-quarter fiscal 2020, the company expects GAAP earnings in the range of 5-20 cents per share and non-GAAP earnings in the range of 22-37 cents per share on revenues of $225-$255 million. Unit volume shipments across various end markets and devices are likely to be lower due to COVID-19 adversities. On a GAAP basis, operating expenses are expected in the $187-$197 million band, whereas on a non-GAAP basis, operating expenses are anticipated in the range of $167-$177 million.
For 2020, Dolby expects GAAP earnings per share (EPS) in the range of $2.04-$2.19 and non-GAAP EPS in the range of $2.76-$2.91. Revenues are anticipated in the range of $1.12-$1.15 billion. On a GAAP basis, operating expenses are expected in the $785-$795 million band, whereas on a non-GAAP basis, operating expenses are anticipated in the range of $697-$707 million.
Due to certain macroeconomic factors like unemployment and supply chain disruptions, Dolby’s near-term performance is more prone to get affected by the ongoing turmoil of the deadly pandemic across various end markets. Although its licensing as well as products and services revenues are likely to be affected by the coronavirus, Dolby is committed to support its business operations in this hour of crisis.
Zacks Rank & Stocks to Consider
Dolby currently has a Zacks Rank #4 (Sell).
Some other better-ranked stocks in the broader industry are Vista Outdoor Inc. VSTO, LiveXLive Media, Inc. LIVX and TEGNA Inc. TGNA, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Vista Outdoor’s bottom line surpassed the Zacks Consensus Estimate thrice in the last four quarters. The company has a trailing four-quarter earnings surprise of 72.9%, on average.
LiveXLive Media’s bottom line surpassed the Zacks Consensus Estimate twice in the last four quarters. The company has a trailing four-quarter earnings surprise of 0.5%, on average.
TEGNA’s bottom line surpassed the Zacks Consensus Estimate twice in the last four quarters. The company has a trailing four-quarter earnings surprise of 4.7%, on average.
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