Harman (HAR) Q1 Earnings, Revenues Top Estimates, Grow Y/Y

Harman International Industries Inc. (NYSE:HAR) reported first-quarter fiscal 2017 results wherein non-GAAP earnings per share of $1.87 and revenues of nearly $1.760 billion easily beat the respective Zacks Consensus Estimate of $1.54 and $1.733 billion. On a year-over-year basis, the metrics grew 27% and 8%, respectively.

On a non-GAAP basis, gross margin grew 80 basis points (bps) to 30.8%. Operating margin increased 100 bps to 10.7%. Non GAAP EBITDA margin was up 80 bps to 12.9%.

Segment Details

Connected Car segment revenues grew 6% year over year to $797 million, driven by increased take rates and production. On a non-GAAP basis, gross margin at the segment improved 110 bps to 24.8% while operating margin grew 50 bps to 12.2%.

Lifestyle Audio revenues increased 19% year over year to $568 million led by increased audio sales. On a non-GAAP basis, gross margin at the segment improved 290 bps to 35.4% while operating margin increased 370 bps to 15.2%.

Professional Solutions division revenues fell 3% from the year-ago quarter to $240 million. On a non-GAAP basis, gross margin at the segment fell 240 bps to 39.2%. Non-GAAP operating margin came down to 8.7% from 11.3% in the prior-year quarter.

Revenues at the company’s Connected Services division were $167 million, up 4% year over year. On a non-GAAP basis, gross margin at the segment declined 280 bps to 31.1% while operating margin was down 90 bps to 11.7%

Balance Sheet

As of Sep 30, 2016, cash and cash equivalents were $511.7 million compared with $602.3 million as on Jun 30, 2016. Long-term debt was $791.6 million compared with $787.3 million as on Jun 30, 2016.

HARMAN INTL IND Price, Consensus and EPS Surprise

HARMAN INTL IND Price, Consensus and EPS Surprise | HARMAN INTL IND Quote

Our Take

Harman is one of the leading companies in the car infotainment space. Apart from audio equipment, Harman’s cloud platform and scalable technology are gaining popularity with a rise in the number of connected cars. In the past, the company has partnered with the likes of InterDigital to develop a range of cutting-edge IoT services. Recently, the company collaborated with the likes of Baidu (NASDAQ:BIDU) , AT&T (NYSE:T) , Brightstar Corp. and others, which are likely to drive its top line.

Harman and Alphabet (NASDAQ:GOOGL) are also collaborating for a project ­– Soli – of Google’s Advanced Technology and Projects Group (ATAP). Harman is working with ATAP for developing speakers that come with a built in Soli radar.

However, the company is exposed to significant customer concentration risk with its top four customers accounting for approximately half of its revenues. Also, the automotive industry is highly competitive. Increasing competition will eventually put pricing under pressure.

Currently, Harman carries a Zacks Rank #4 (Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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