Why Is Dolby Laboratories (DLB) Down 6.1% Since Its Last Earnings Report?

A month has gone by since the last earnings report for Dolby Laboratories (NYSE:DLB) . Shares have lost about 6.1% in that time frame.

Will the recent negative trend continue leading up to its next earnings release, or is DLB due for a breakout? 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.

Dolby Laboratories Q2 Earnings & Revenues Top Estimates

Dolby reported second-quarter fiscal 2018 adjusted earnings of 78 cents per share, beating the Zacks Consensus Estimate of 77 cents.

Moreover, the company’s GAAP earnings came in at 66 cents per share compared with 49 cents per share in the year-ago quarter.

Inside the Headlines

Dolby’s total revenues $301.4 million came within the company’s projected range of $295-$305 million. Also, the top line surpassed the Zacks Consensus Estimate of $300.2 million and improved 12.7% on a year-over-year basis. Solid increase in revenues across the company’s licensing segment contributed to the decent rise in the top line.

The company’s Licensing revenues came in at $273.1 million, up 13% year over year. Licensing in other markets and Mobile devices sales drove the segment’s growth. In the reported quarter, Licensing in other markets was up about 19% year over year, driven by higher revenues in Dolby Cinema and gaming. The same in Mobile devices more than doubled, courtesy of the company’s higher penetration in new models and timing of payments.

Product revenues came in at $22.7 million, up 9.7% on a year-over-year basis. This improvement was driven by growth in Cinema products as well as Dolby Voice. Revenues at the Services segment also increased 7.8% year over year to $5.5 million.

In the fiscal second quarter, Dolby’s operating margin expanded 490 basis points on a year-over -year basis to 28.6%.

Liquidity

As of Mar 30, 2018, Dolby had cash and cash equivalents of approximately $705.5 million, up from $532.5 million as of Mar 31, 2017.

Net cash provided by operating activities came in at $98 million compared with $159.3 million as of Mar 31, 2017.

Guidance

Concurrent with the market scenario, Dolby issued guidance for third-quarter fiscal 2018 earnings and revenues. The company envisions non-GAAP earnings in the range of 78-84 cents, while revenues are expected to lie within $310-$320 million.

While, non-GAAP gross margin is projected in the band of 89.5-90.5%, non-GAAP operating expenses are expected between $172 million and $176 million.

Dolby also provided guidance for fiscal 2018. Total revenues are anticipated in the range of $1.165-$1.185 billion. Revenue streams such as mobile revenues, Consumer Imaging and Consumer Electronics are expected to drive top-line growth.

Further, non-GAAP operating expenses for fiscal 2018 are projected between $670 million and $675 million.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. There have been four revisions lower for the current quarter. Last month, the consensus estimate has shifted downward by 11.8% due to these changes.

Dolby Laboratories Price and Consensus

VGM Scores

At this time, DLB has a nice Growth Score of B, though it is lagging a bit on the momentum front with a C. Following the exact same course, the stock was also 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.

Based on our scores, the stock is more suitable for growth investors than those looking for value and momentum.

Outlook

Estimates have been broadly trending downward for the stock and the magnitude of these revisions indicates a downward shift. Interestingly, DLB has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.