Harman International (HAR) Earnings & Revenues Beat In Q4

Harman International Industries Inc. (NYSE:HAR) reported better-than-expected fourth quarter fiscal 2016 results. Non-GAAP earnings of $1.57 per share beat the Zacks Consensus Estimate of $1.53. Earnings improved 14% on a year-over-year basis

Quarterly revenues of $1.881 billion were also ahead of the Zacks Consensus Estimate of $1.787 billion. On a year-over-year basis, revenues grew 12%.

On a non-GAAP basis, gross margin grew 110 basis points (bps) to 30.5%. Operating margin increased 140 bps to 8.2%. Non GAAP EBITDA margin was up 86 bps to 12%.

Segment Details

Connected Car segment revenues grew 11% year over year to $843 million, driven by higher take rates and stronger production. On a non-GAAP basis, gross margin at the segment improved 300 bps to 25.5% while operating margin grew 190 bps to 11.4%.

Lifestyle Audio revenues increased 25% year over year to $578 million led by higher take rates in car audio and the Bang & Olufsen acquisition. In addition, the company continued to see strength in demand for smart audio solutions. On a non-GAAP basis, gross margin at the segment improved 380 bps to 35.1% while operating margin increased 120 bps to 13.5%.

Professional Solutions division revenues inched up 1% from the year-ago quarter to $286 million. On a non-GAAP basis, gross margin at the segment fell 340 bps to 36.7%. Non-GAAP operating margin came down to 9.8% from 13.3% in the prior year quarter.

Revenues at the company’s Connected Services division were $185 million, up 7% year over year. On a non-GAAP basis, gross margin at the segment declined 850 bps to 28.2% while operating margin was down 650 bps to 10.3%

Balance Sheet

As of Jun 30, 2016, cash and cash equivalents were $602.3 million compared with $649.5 million as on Jun 30, 2015.

Outlook

The company provided its guidance for fiscal 2017.

Harman expects sales for fiscal 2017 in the range of $7,300 million - $7,500 million. Full year GAAP earnings per share are projected to be $6.75 to $7.00.

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 (NASDAQ:IDCC) to develop a range of cutting-edge IoT services.

In the fourth quarter, the company extended its partnership with Alphabet’s (NASDAQ:GOOGL) Google to provide audio modules for the latter’s upcoming modular smartphone, Ara. Apart from Ara, Harman and Google are also collaborating for another project ­– Soli – of the 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, a concern for the company is the exposure to significant customer concentration risks with its top five customers accounting for approximately half of its revenues and around 75% of its auto-related revenues.

Currently, Harman carries a Zacks Rank #4 (Sell). A better-ranked stock in the broader tech space is Quantum Corporation (NYSE:QTM) , sporting a Zacks Rank #1 (Strong Buy).