It has been about a month since the last earnings report for Logitech (LOGI). Shares have lost about 10.3% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Logitech due for a breakout? 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 catalysts.
Logitech Reports Mixed Q2 Results
Logitech reported second-quarter fiscal 2019 results, wherein both the top line and the bottom line improved year over year.
Non-GAAP earnings came in at 49 cents per share, surpassing the Zacks Consensus Estimate of 46 cents. Earnings also marked an improvement from the year-ago quarter figure of 39 cents.
Net sales of $691.2 million missed the Zacks Consensus Estimate of $695 million but rose 9.3% year over year. Revenue growth stemmed from solid performance in Logitech’s Video Collaboration, Gaming businesses and PC Peripherals category.
Logitech’s first digital pencil, Crayon; and its wireless charging dock for iPhone, POWERED, along with existing products like Slim Folio were key drivers.
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 10.7%, 3.8%, 2.5% and 19.2%, respectively, which we believe, is mainly due to a stabilized PC market.
Gaming surged 41.4% year over year to $160.8 million, supported by strong momentum across its latest products. Meanwhile, Video Collaboration grew 24.1% to $57.2 million.
However, the Mobile Speakers business and Smart Home segment put up a disappointing show. Mobile Speaker sales plunged 14.8% to $77.1 million, while the smart home category witnessed sales decline of 49.7% to $9.2 million.
Audio & Wearables also declined 1.3% year over year, alongside a 31.5% fall in the Other category.
Margins & Operating Metrics
Non-GAAP gross margin increased 110 basis points (bps) year over year to 37.6%, driven by continued cost reduction efforts, favorable mix and currency gains. This was partially offset by growth supporting investments in customer sales programs. Moreover, Logitech also benefited from a one-time $7 million tax duty refund which aided the expansion in gross margin.
Non-GAAP operating income climbed 18.5% to $84.6 milliondriven by a $10 million restructuring credit related to the realignment of resources for growth. Operating margin of 12.2% expanded 90 bps from the year-ago quarter. High restructuring costs led to increased operating expenses by 13.2% year over year.
In the reported quarter, Logitech completed the acquisition of Blue Microphones for a total consideration of $134 million, which led to an increase in about 1 percentage point in the company’s growth in the reported quarter.
As of Sep 30, 2018, Logitech’s cash and cash equivalents were $425 million compared with $604.1 million in the previous quarter. Additionally, the company generated operating cash flow of $84.9 million in the fiscal second quarter.
Logitech reiterated fiscal 2019 outlook of 9-11% sales growth in constant currency and non-GAAP operating income between $325 million and $335 million.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates.
At this time, Logitech has a nice Growth Score of B, however its Momentum Score is doing a bit better with an A. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
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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