Logitech International SA (LOGI) reported a loss of $0.23 per share in the fourth quarter of 2013, well below the Zacks Consensus Estimate of a loss of 11 cents and earnings of 17 cents in prior-year quarter. Continued weakness in the global PC market and macroeconomic uncertainty in the EMEA (Europe Middle East and Africa) region were the primary factors behind the loss in the reported quarter. The Company posted a non-GAAP operating income of $8 million for the full year 2013 excluding impairment and restructuring charges. But there was a net loss for the full fiscal year amounting to $228 million ($1.44 per share) compared to net income of $71 million ($0.41 per share) in fiscal year 2012. Gross margin for FY 2013 was 33.7 percent, slightly above the previous year level of 33.5 percent
Net sales in the fourth quarter of 2013 stood at $469 million, down 12% year over year and missed the Zacks Consensus Estimate of $484 million. The decline in revenues was primarily due to greater-than-expected dip in OEM (Original Equipment Manufacturer) sales, and poor economic condition in the EMEA region. For the full year 2013, sales were $2.1 billion, compared to $2.3 billion in the previous year.
Sales by Channel
Retail sales declined 10% year over year to $407.7 million. The reduction was due to lower sales from the EMEA region (down 25%), the Americas (down 2%), Asia (up 2%), Sales for Life size and OEM division showed a decline.Life size sales down by 19% and OEM sales down by 21%.
Sales by Product Division
Tablet Accessories was the best-performing retail product category in the reported quarter with sales increasing a robust 332% year over year to $30.8 million. However, this increase was fully offset by sales reduction in other categories. PC gaming sales showed a 43% decline year over year, Audio Wireless and Wearable sales went down by 39% to $8 million and remote sales were down by 33% to $11 million. Concurrently, except PC keyboards and desktop, all other product categories reported reduced sales year over year. PC Keyboards and Desktops sales were up by 4%.
Gross margin for the quarter was 33.5% compared with 36.4% in the year-ago quarter. This decrease in gross margin was primarily caused by the imposition of a charge to revalue inventory of several headphones and a large form-factor wireless speaker totaling $5 million.
Operating loss for the reported quarter was $37 million, compared with an operating profit of $24 million in the prior-year quarter. Operating expenses for the fourth quarter of 2013 were $194.2 million, up 14.2% year over year.
Balance Sheet & Cash Flow
As of Mar 31, 2013, cash and cash equivalents were $333.8 million down by $ 145 million from the year ago level. Shareholder’s equity was $733.7 million while the year level was $1,150 million. This huge differenc is the result of a $90 million share repurchase made during the year.
Net cash provided by operating activities was $12.8 million at the end of the quarter versus $42.0 million in the prior-year period. Capital expenditures incurred during the quarter were $7.2 million. As of March 31, 2013 the company had a balace of $ 266 millions of accounts payable (77 days) compared to $301 (80 days) million at the end of FY 2012.
Given the increasing popularity of smart phones and tablets, Logitech intends to tap this high potential market, which is still under penetrated in terms of accessories, wireless speakers and earphones. The company has also taken certain strategic decisions towards focusing on priority products that will improve its profitability, going forward. Logitech intends to sustain its growth in the LifeSize category and achieve profitability by the end of fiscal year 2014.
Further, management has identified a number of product categories that no longer fit well with the company’s strategic direction. As a result, Logitech has initiated the process to divest its non-strategic categories and remove unnecessary costs by the end of 2014.
Logitech believes that by divesting non-profit making sectors, it will become a more focused company as well as reduce costs significantly. The company expects to generate sales of $2 billion by the end of fiscal year 2014 and an operating income of $50 million. As per management’s expectation, this will be coupled with a gross margin of approximately 34%.
Logitech has a Zacks Rank #3 (Hod) while other industry participants Synaptics Inc. (SYNA) has a Zacks Rank #1 (Stong Buy), while Analogic Corporation ( ALOG) and Avery Dennison Corporation ( AVY) carry a Zacks Rank # 2 (Buy) each.
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