Logitech (LOGI) Q3 Earnings Beat, Up Y/Y, Guidance Raised

Logitech International SA LOGI continued its impressive streak of earnings beats for the ninth consecutive quarter. On an adjusted basis, the company’s third-quarter fiscal 2018 earnings came in at 65 cents per share, surpassing the Zacks Consensus Estimate of 56 cents by 16.1%.

The company also delivered its highest quarterly sales ever as well as highest sales growth in seven years, driven by robust sales across product categories and strong momentum in Gaming, Mobile Speakers and Video Collaboration businesses.

On a GAAP basis, Logitech reported earnings of 48 cents per share, which declined 18.6% year over year. The company’s GAAP profitability was adversely affected by one-time expense of net tax of about $16 million.

Inside the Headlines

Net sales for the quarter rose 21.8% year over year to an all-time record of $812 million, surpassing the Zacks Consensus Estimate of $754 million. Revenue growth was attributable to solid performance in Logitech’s Video Collaboration, Gaming businesses as well as Mobile Speakers business categories. Moreover, the company’s ASTRO acquisition business performed better than expected.

Creativity and Productivity business comprises four sub-business lines — Keyboards and Combos, Pointing Devices, PC Webcams, and Tablet and Other Accessories. Of these, Pointing Devices and Keyboards and Combos remained flat. Tablet and Other Accessories experienced an increase of 7.2% year over year in sales. However, PC Webcams experienced a decrease of 10.6%.in sales

Gaming surged 62.1% year over year to $ 173.8 million, driven by strong momentum across its fresh products. Meanwhile, Video Collaboration grew 29.2% to $46.3 million, aided by broad-based growth in all three markets. Additionally, the Music business, which comprises Mobile Speakers units and Audio-PC & Wearables, witnessed impressive performance. Audio PC & Wearables sales surged 25.6% to $84.4 million, while Mobile Speaker segment experienced an increase in sales of 38.3% to $147.4 million. In addition, smart home category witnessed sales growth of 43.9% to $38.7 million.

Non-GAAP operating margin contracted 50 basis points year over year to 14.4%, while non-GAAP operating income jumped 18.2% year over year to $117.1 million.

Logitech International S.A. Price, Consensus and EPS Surprise

Logitech International S.A. Price, Consensus and EPS Surprise | Logitech International S.A. Quote

Liquidity

As on Dec 31, 2017, Logitech’s cash and cash equivalents were $564.9 million compared with $513.6 million as of Dec 31, 2016. Moreover, the net cash provided by operating activities came in at $188.6 million, an increase from the year-ago tally of $148.8 million.

Guidance

Concurrent with the third-quarter fiscal 2018 results, Logitech raised fiscal-year 2018 guidance. It now expects non-GAAP operating income in the range of $270-$280 million, compared with the earlier guided range of $260-$270 million. Further, it now anticipates constant currency fiscal 2018 sales in the range of 12-14%, compared with its earlier projection of 10-12% growth.

Our Take

Logitech remains optimistic that the steady traction of its product lines, as well as positive industry trends will continue to fuel growth. We believe that the strong momentum in Gaming and Video Collaboration businesses, along with its thriving cloud-based video conferencing services, will continue to be catalysts for the company’s growth. In addition, the Astro buyout is expected to enable the company to leverage the console gaming market and help accelerate the long-term growth of business.

However, the rising trend of smaller, mobile computing devices with touch interfaces and the declining popularity of desktop PCs have rapidly changed the market and usage models for PC peripherals and webcams. Declining demand in the company’s most profit-maximizing products like desktops and diverse porting tools can be a headwind.

Logitech currently carries a Zacks Rank #3 (Hold).

Stocks to Consider

Some better-ranked stocks worth considering in the same space include Broadcom Limited AVGO, Arista Networks, Inc. ANET and Applied Materials, Inc. AMAT. While Broadcom sports a Zacks Rank #1 (Strong Buy), Arista Networks and Applied Materials carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Broadcom has an excellent earnings surprise history, surpassing estimates in the trailing four quarters with an average beat of 4.5%.

Arista Networks has an excellent earnings surprise history, exceeding estimates in the trailing four quarters with an average beat of 27.5%.

Applied Materials has posted earning beat in the trailing four quarters. It boasts an average beat of 2.8%.

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