Dolby Laboratories, Inc. DLB reported unimpressive fourth-quarter fiscal 2020 (ended Sep 25, 2020) results, with the top line and the bottom line decreasing on a year-over-year basis. Lower revenues from product and services segment coupled with sluggish global cinema market due to COVID-19 adversities marred the quarterly performance.
On a GAAP basis, net income for the quarter was $26.8 million or 26 cents per share compared with $43.9 million or 43 cents per share in the year-ago quarter. The year-over-year deterioration was primarily caused by top-line contraction.
Non-GAAP net income came in at $45.8 million or 45 cents per share compared with $67.6 million or 66 cents per share in the prior-year quarter. The bottom line beat the Zacks Consensus Estimate by 11 cents.
On a GAAP basis, fiscal 2020 net income was $231.4 million or $2.25 per share compared with $255.2 million or $2.44 per share in the prior fiscal year. On a non-GAAP basis, fiscal 2020 net income decreased to $305.2 million or $2.97 per share from $334.6 million or $3.20 per share a year ago.
Dolby Laboratories Price, Consensus and EPS Surprise
Dolby Laboratories price-consensus-eps-surprise-chart | Dolby Laboratories Quote
Quarterly revenues came in at $271.2 million, down 9.2% from $298.8 million in the year-ago quarter. The decline was largely caused by the COVID-19 pandemic, which led to temporary business shutdowns and lower consumer activity globally, particularly in products and services segment. Nevertheless, the top line surpassed the Zacks Consensus Estimate of $242 million. In fiscal 2020, Dolby reported total revenues of $1,161.8 million compared with $1,241.6 million in fiscal 2019.
Despite year-over-year higher revenues in Broadcast business, revenues from Licensing came in at $256.9 million, down 3% year over year from $264.8 million. The decline was primarily caused by lower recoveries stemming from the COVID-19 pandemic. However, it was partially offset by higher adoption of TVs and set-top boxes with a solid traction in both Dolby Vision and Dolby Atmos.
Sales from Consumer Electronics and Mobile Devices were down nearly 8% and 13%, respectively, from prior-year quarter’s figure owing to lower recoveries. Revenues from Other Markets fell nearly 19% owing to a decline in revenues from Dolby Cinema as a result of COVID-19 restrictions coupled with lower gaming revenues. Meanwhile, sales from PC were up about 26% year over year, driven by higher adoption of Dolby Technologies.
Products and services revenues came in at $14.3 million, down 58% year over year. The downside was primarily caused by the impact of the virus outbreak on the Cinema business as social distancing norms led to movie theatre closures.
Gross profit in the fiscal fourth quarter was $228.7 million compared with $252.9 million in the year-earlier quarter. Total operating expenses fell 1.5% to $198.7 million, primarily due to lower restructuring charges. Operating income was $30.1 million compared with $51.2 million in the year-ago quarter.
Cash Flow and Liquidity
In fourth-quarter fiscal 2020, Dolby generated $112.7 million of net cash from operating activities compared with $130.5 million in the year-ago quarter. Cash flow from operations was $343.8 million in fiscal 2020 compared with $327.7 million in fiscal 2019. As of Sep 25, 2020, the company had $1,071.9 million in cash and cash equivalents with $122.2 million of other non-current liabilities compared with the respective tallies of $797.2 million and $177.5 million a year ago.
Despite uncertainties pertaining to the virus outbreak, Dolby provided guidance for the first and the second quarters of fiscal 2021.
For first-quarter fiscal 2021, the company expects GAAP earnings in the range of 70-85 cents per share and non-GAAP earnings in the range of 97 cents to $1.12 per share on revenues of $330-$360 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 $207-$219 million band, whereas on a non-GAAP basis, operating expenses are projected in the range of $175-$185 million.
For second-quarter fiscal 2021, Dolby expects revenues in the range of $270-$300 million.
However, macroeconomic factors like unemployment and supply chain disruptions might hurt Dolby’s near-term performance. Although its licensing as well as products and services revenues are likely to be affected by the coronavirus, Dolby remains committed to supporting its business operations in this hour of crisis.
Zacks Rank & Stocks to Consider
Dolby currently has a Zacks Rank #3 (Hold).
Some better-ranked stocks in the broader industry are Fox Corporation FOXA, TEGNA Inc. TGNA and Grupo Televisa, S.A.B. TV. While Fox Corporation and TEGNA sport a Zacks Rank #1 (Strong Buy), Grupo Televisa carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Fox Corporation delivered a trailing four-quarter positive earnings surprise of 106.6%, on average.
TEGNA delivered a trailing four-quarter positive earnings surprise of 19.8%, on average.
Grupo Televisa delivered a trailing four-quarter positive earnings surprise of 30.8%, on average.
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