Why Is Dolby Laboratories (DLB) Up 4.8% Since Last Earnings Report?
A month has gone by since the last earnings report for Dolby Laboratories (DLB). Shares have added about 4.8% 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 Beat on Healthy Top-Line Growth
Dolby reported mixed fourth-quarter fiscal 2021 (ended Sep 24, 2021) results, with the bottom line surpassing the Zacks Consensus Estimate but the top line missing the same. Despite accelerated adoption of Dolby Vision and Dolby Atmos, weakness across the global cinema market and supply chain disruptions continued to hamper its operating momentum.
Net Income
On a GAAP basis, net income in the September quarter improved to $44.2 million or 42 cents per share from $26.8 million or 26 cents per share in the year-ago quarter primarily driven by top-line growth.
Non-GAAP net income came in at $60.4 million or 58 cents per share compared with $45.8 million or 45 cents per share in the prior-year quarter. While the GAAP earnings exceeded the guidance of 25-40 cents per share, non-GAAP earnings were well within the management expectations of 47-62 cents. The bottom line beat the Zacks Consensus Estimate by a couple of cents.
In fiscal 2021, GAAP net income improved to $310.2 million or $2.97 per share from $231.4 million or $2.25 per share in fiscal 2020. Non-GAAP net income came in at $383.3 million or $3.66 per share compared with $305.2 million or $2.97 per share in the prior fiscal.
Revenues
Total revenues in the reported quarter were $285 million, up from $271.2 million in the year-ago quarter. The upside was driven by higher consumer device shipments and healthy traction of Dolby Vision and Dolby Atmos technologies. The top line, however, missed the consensus estimate of $297 million. In fiscal 2021, revenues improved to $1,281.3 million from $1,161.8 million, largely led by higher adoption of Dolby Vision and Dolby Atmos technologies in TV and set-top boxes.
Segment Performance
Revenues from Licensing were $266 million, up from $256.9 million owing to greater adoption of Dolby Vision and Dolby Atmos. Broadcast Licensing contributed 40% to total licensing revenues in the fiscal third quarter. Mobile licensing accounted for 16%, consumer electronics 17%, PC licensing 12% and licensing from other markets contributed to 15% of the licensing revenues. Products and services revenues came in at $19 million, up from $14.3 million due to partial recovery of the global cinema market as movie theaters are yet to operate at full capacity.
Other Details
Gross profit in the fiscal fourth quarter was $254.3 million compared with $228.7 million in the year-earlier quarter driven by top-line expansion and lower cost of revenues. Total operating expenses increased to $214 million from $198.7 million, primarily due to higher sales and marketing expenses. Operating income was $40.4 million compared with $30.1 million in the year-ago quarter.
Cash Flow and Liquidity
In fiscal 2021, Dolby generated $447.8 million of net cash from operating activities compared with $343.8 million a year ago. As of Sep 25, 2021, the company had $1,225.4 million in cash and cash equivalents with $105.3 million of other non-current liabilities compared with respective tallies of $1,071.9 million and $122.2 million in fiscal 2020.
Guidance
Despite uncertainties pertaining to the coronavirus outbreak, Dolby provided guidance for first-quarter and fiscal 2022. For the fiscal first quarter, the company expects GAAP earnings in the range of 71-86 cents per share and non-GAAP earnings in the range of 98 cents to $1.13 per share on revenues of $345-$375 million. On a GAAP basis, operating expenses are expected in the $221-$231 million band whereas on a non-GAAP basis, operating expenses are anticipated in the range of $190-$200 million.
For fiscal 2022, the company expects GAAP earnings in the range of $2.53-$3.03 per share and non-GAAP earnings in the range of $3.52-$4.02 per share on revenues of $1.34-$1.4 billion. On a GAAP basis, operating expenses are expected in the $869-$889 million band whereas on a non-GAAP basis, operating expenses are anticipated in the range of $750-$770 million.
How Have Estimates Been Moving Since Then?
It turns out, estimates review have trended downward during the past month. The consensus estimate has shifted -16.5% due to these changes.
VGM Scores
Currently, Dolby Laboratories has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. It's no surprise Dolby Laboratories has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.
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