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Why Is Logitech (LOGI) Up 9% Since Last Earnings Report?

Zacks Equity Research
DSW (DBI) doesn't possess the right combination of the two key ingredients for a likely earnings beat in its upcoming report. Get prepared with the key expectations.

A month has gone by since the last earnings report for Logitech (LOGI). Shares have added about 9% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Logitech due for a pullback? 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 drivers.

Logitech Reports Healthy Q3 Results

Logitech reported solid third-quarter fiscal 2019 results, wherein both the top line and the bottom line surpassed estimates and improved year over year.

Non-GAAP earnings came in at 79 cents per share, surpassing the Zacks Consensus Estimate of 67 cents. The bottom line also improved from the year-ago quarter figure of 65 cents.

Net sales of $864 million beat the Zacks Consensus Estimate of $863 million and rose 6.4% year over year. Revenue growth stemmed from solid performance in Logitech’s Video Collaboration, Gaming and Creativity & Productivity businesses.

Segmental Details

Logitech’s Creativity and Productivity business comprises four sub-business lines — Keyboards and Combos, Pointing Devices, PC Webcams, and Tablet and Other Accessories. Each of these registered year-over-year improvement of 14%, 6%, 21% and 34%, respectively

Gaming jumped 23% year over year to $213.7 million, supported by strong momentum across its latest products including advanced keyboards, headphones and mouse used for popular online games such as League of Legends and Fortnite. Meanwhile, Video Collaboration surged 60% to $74.2 million.

However, the Mobile Speakers business and Smart Home segment put up a disappointing show. Mobile Speaker sales plunged 35% to $96.3 million while the smart home category witnessed sales decline of 49% to $19.6 million.

Audio & Wearables increased 17% year over year to $98.6 million.

There were no revenues realized from the Other segment in the reported quarter.

Margins & Operating Metrics

Non-GAAP gross profit rose 18% year over year to $329.6 million. Non-GAAP gross margin increased 370 basis points (bps) year over year to 38.1%,

Non-GAAP operating expenses increased 15% year over year to $186.4 million.

Non-GAAP operating income climbed 22.3% to $143.2 million Operating margin of 16.6% expanded 220 bps from the year-ago quarter.

Liquidity

As of Dec 31, 2018, Logitech’s cash and cash equivalents were $584.5 million compared with $425 million in the previous quarter.

Additionally, the company generated operating cash flow of $176.2 million in the fiscal third quarter compared with $84.9 million in the prior quarter.

Guidance

Logitech raised its view for fiscal 2019. Instead of a non-GAAP operating income between $325 million and $335 million, the company now expects the figure to be $340-$345 million.

Revenue growth is still anticipated within 9-11% in constant currency.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates.

VGM Scores

At this time, Logitech has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with a C. Following the exact same course, 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 B. 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 these revisions indicates a downward shift. Notably, Logitech has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.



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