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Knowles (KN) Q3 Earnings Match Estimates, Revenues Flat Y/Y

Zacks Equity Research

Knowles Corporation KN reported decent third-quarter 2019 results, wherein the top line remained flat year over year and the bottom line rose.

Net Income

On a GAAP basis, earnings from continuing operations jumped to $25.4 million or 27 cents per share from loss of $17.8 million or loss of 20 cents per share in the year-ago quarter. The improvement was primarily attributable to lower provision for income tax.

Quarterly non-GAAP net earnings were $35.8 million or 38 cents per share compared with $32.1 million or 34 cents per share in the prior-year quarter. The bottom line matched the Zacks Consensus Estimate.

Knowles Corporation Price, Consensus and EPS Surprise

 

Knowles Corporation Price, Consensus and EPS Surprise

Knowles Corporation price-consensus-eps-surprise-chart | Knowles Corporation Quote

Revenues

Quarterly revenues were flat year over year at $235.9 million (above the mid-point of the company’s guided range), as strong sales in the Ear and IoT markets along with solid demand for Precision Device solutions were offset by soft trends in Mobile. The top line, however, barely surpassed the consensus estimate of $235 million.

Segment-wise, Audio revenues were down 3% year over year to $194 million. This resulted from weaker demand for high-end smartphones in China that use the company’s MEMS (micro-electro-mechanical systems) microphones and intelligent audio solutions. However, the declines were largely offset by increased shipments of microphones and balanced armature speakers into the ear and IoT markets.

Revenues from Precision Devices increased 13% from the third quarter of 2018 to $42 million. This was the result of 8% organic growth driven by strong demand for high performance capacitors in the defense and medtech end markets, and an acquisition completed early in the first quarter of 2019.

Other Details

Non-GAAP gross profit rose to $94.7 million from $90.7 million for respective margin of 40.1% and 38.4%. This was within the guidance range and up 170 basis points from the year-ago quarter, driven by favorable product mix within audio, particularly higher microphone sales to the ear and IoT markets.

Cash Flow & Liquidity

Knowles generated $40 million of cash from operating activities during the quarter. This was at the low end of its guidance range due to timing of receivable collections within the year. As of Sep 30, 2019, the company had $69.7 million in cash and equivalents with $154.8 million of long-term debt.

Q4 Outlook

For the fourth quarter of 2019, Knowles expects revenues in the range of $225-$250 million. It anticipates non-GAAP gross margin of 39.5-42.5%, down more than 160 basis points from the year-ago quarter due to a supplier credit recorded in fourth-quarter 2018 that will not repeat. Non-GAAP earnings are anticipated to lie within 37-43 cents per share.

Revenues from the Audio segment are expected between $185 million and $200 million, indicating a 4% increase year over year due to higher shipments of mics into ear and IoT applications, partly offset by weaker handset demand in China. Precision Devices revenues are anticipated between $40 million and $50 million, indicating 16% increase driven by organic growth across telecom, defense and medtech markets, and accretive effects of acquisition.

Zacks Rank & Stocks to Consider

Knowles currently has a Zacks Rank #3 (Hold). A few better-ranked stocks in the broader industry are Harmonic Inc. HLIT, Ubiquiti Inc. UI and PCTEL, Inc. PCTI, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.   

Harmonic surpassed earnings estimates in each of the trailing four quarters, the average surprise being 119.9%.

Ubiquiti surpassed earnings estimates thrice in the trailing four quarters, the average positive surprise being 19.4%.

PCTEL surpassed earnings estimates thrice in the trailing four quarters, the average positive surprise being 146.4%.

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