It has been about a month since the last earnings report for Dolby Laboratories (DLB). Shares have lost about 3.7% in that time frame, outperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Dolby Laboratories due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Dolby Q1 Earnings & Revenues Beat Estimates, Down Y/Y
Dolby reported relatively lackluster first-quarter fiscal 2020 (ended Dec 27, 2019) results with year-over-year decrease in revenues and earnings on higher operating expenses. However, both the bottom and top lines surpassed the Zacks Consensus Estimate.
On a GAAP basis, net income was $48.8 million or 47 cents per share compared with $98.2 million or 93 cents per share in the year-ago quarter. The significant decline in earnings was primarily attributable to lower revenues, higher operating expenses and income tax benefit in the year-ago quarter. However, the bottom line surpassed the Zacks Consensus Estimate by 17 cents.
Non-GAAP net income came in at $65.5 million or 64 cents per share compared with $78.7 million or 74 cents per share in the prior-year quarter.
Total revenues were $291.9 million, down from $302.4 million in the year-ago quarter, primarily due to decline in revenues in Licensing and Products and services segments despite higher adoption of Dolby Vision and Dolby Atmos technology. However, the top line surpassed the Zacks Consensus Estimate of $286 million.
Revenues from Licensing were $257.7 million, down 1% year over year, owing to lower revenues in Broadcast business. Sales from Consumer Electronics increased 12%, driven by higher adoption of Dolby Vision and Dolby Atmos coupled with higher volume. Mobile Devices represented 13% of total licensing. Sales from PC surged 38% year over year, mainly driven by higher recoveries with increased adoption of Dolby technologies, but the same from Licensing in other markets fell nearly 32% due to lower recoveries in automotive.
Products and services revenues came in at $34.2 million, down 18.8%, primarily due to the impact of hybrid deals in the Cinema business in the prior-year quarter.
Gross profit in the fiscal first quarter was $254.6 million compared with $263.7 million in the year-earlier quarter. Total operating expenses increased 5.6% to $206 million, primarily due to restructuring charges. Operating income was $48.6 million compared with $68.7 million a year ago.
Cash Flow & Liquidity
In the first three months of fiscal 2020, Dolby generated $31.2 million of net cash from operating activities compared with $57 million in the year-ago quarter. As of Dec 27, 2019, the company had $741.4 million in cash and equivalents with $179.2 million of non-current liabilities.
Dolby has provided guidance for second-quarter fiscal 2020. The company expects GAAP earnings per share in the range of 97 cents to $1.03 and non-GAAP earnings per share in the range of $1.15-$1.21, while revenues are anticipated to be $370-$390 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 of $3.40-$3.50.
How Have Estimates Been Moving Since Then?
It turns out, estimates review flatlined during the past month.
Currently, Dolby Laboratories has a subpar Growth Score of D, however its Momentum Score is doing a lot better with a B. However, 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 D. If you aren't focused on one strategy, this score is the one you should be interested in.
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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