A month has gone by since the last earnings report for Dolby Laboratories (DLB). Shares have added about 3.4% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Dolby Laboratories due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Dolby Q4 Earnings Miss Estimates, Revenues Up Y/Y
Dolby reported healthy fourth-quarter fiscal 2019 results with year-over-year increase in earnings and revenues. Strong momentum of broadcast revenues, Dolby Vision and Dolby Atmos experience and new offerings from Apple and Walt Disney were the primary drivers.
On a GAAP basis, net income for the quarter was $43.9 million or 43 cents per share compared with $26.7 million or 25 cents per share in the year-ago quarter. The significant rise in earnings was primarily backed by top-line growth. However, the bottom line missed the Zacks Consensus Estimate by 5 cents.
Non-GAAP net income came in at $67.6 million or 66 cents per share compared with $23.5 million or 22 cents per share in the prior-year quarter.
On a GAAP basis, fiscal 2019 net income was $255.2 million or $2.44 per share compared with $41.7 million or 39 cents per share in the prior fiscal year. On a non-GAAP basis, fiscal 2019 net income was $334.6 million or $3.20 per share compared with $215.8 million or $2.02 per share a year ago.
Total revenues were $298.8 million, up from $240.6 million in the year-ago quarter, primarily driven by growth in Licensing and Products and services segments. The top line surpassed the Zacks Consensus Estimate of $298 million. For fiscal 2019, Dolby reported total revenues of $1,241.6 million compared with $1,054.6 million in fiscal 2018.
Revenues from Licensing were $264.8 million, up 23.3% year over year, owing to higher revenues from Dolby vision coupled with higher recoveries in Broadcast business. Sales from Consumer Electronics declined 8% year over year due to lower recoveries. Mobile Devices represented 17% of total licensing, failing to create a major impact in the reported quarter, primarily due to the impact of 606 recast in prior-year revenues. Sales from PC decreased 5% year over year, mainly due to lower mix of ASPs, and the same from Licensing in other markets were down nearly 8% due to lower recoveries, offset partially by higher revenues from Dolby Cinema and gaming.
Products and Services revenues came in at $34 million, up 31.5% due to higher sales of new product offerings in the Cinema business.
Gross profit was $252.9 million compared with $209.3 million in the year-earlier quarter. Total operating expenses increased 2.5% year over year to $201.6 million, primarily due to restructuring expenses. Operating income was $51.2 million compared with $12.6 million a year ago.
Cash Flow & Liquidity
In fourth-quarter fiscal 2019, Dolby generated $130.5 million of net cash from operating activities compared with $111.7 million in the year-ago quarter. Cash flow from operations was $327.7 million in fiscal 2019 compared with $352.2 million in fiscal 2018. As of Sep 27, 2019, the company had $797.2 million in cash and equivalents with $177.5 million of non-current liabilities compared with the respective tallies of $918.1 million and $183.8 million a year ago.
Dolby has provided guidance for first-quarter fiscal 2020. The company expects GAAP earnings per share in the range of 27-33 cents and non-GAAP earnings per share in the range of 45-51 cents, while revenues are anticipated to be $275-$295 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 in the band of $3.40-$3.50.
How Have Estimates Been Moving Since Then?
It turns out, estimates revision have trended downward during the past month. The consensus estimate has shifted -46.77% due to these changes.
Currently, Dolby Laboratories has an average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. Notably, Dolby Laboratories has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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