Harman Fourth-Quarter Net Doubles; Lowers Full-Year Guidance
08/10/2012| 11:05am US/Eastern
--Sales in emerging markets led top-line growth, driven by a 42% increase in China
--CEO says Harman has minimal exposure to weaker European economies as firm expands in Asia and emerging markets
--Harman signed $900 million infotainment contract with General Motors
(Updates with CEO interview comments, additional background and the latest stock quote.)
By John Kell
Harman International Industries Inc.'s (>> Harman International Industries Inc./DE/) fiscal fourth-quarter earnings more than doubled as sales in emerging markets led top-line growth and gross margins expanded, helping offset the weaker euro.
The maker of high-end stereo, audio and recording equipment and digital products has notched top-line growth recently by aggressively expanding into emerging markets and from an overall recovery in consumer and automotive spending.
Brazil, Russia, India and China continued to lead sales growth, including a 42% increase in China. President and Chief Executive Dinesh Paliwal told Dow Jones Newswires that in Europe, Germany continued to be a very strong market.
Mr. Paliwal said that although the overall car market is projected to grow just 2% to 3% globally in 2013, Harman's sales should easily surpass that forecast on a constant-currency basis.
Harman also has minimal exposure to weaker economies like Spain and Greece, and sales derived from the more prominent European nations like France and the United Kingdom have lessened as the company's business expands more rapidly in Asia and other emerging markets.
The latest results topped Wall Street's expectations, and Harman also announced it signed a $900 million infotainment contract with General Motors Co. (>> General Motors Company), its first contract with the U.S. auto maker.
That news sent shares up 1.7% to $43.23 in recent trading. The stock has gained 14% this year.
Sales jumped 5%, excluding currency changes, in Harman's largest business, the infotainment division. Those embedded systems combine information products such as a global-positioning system with entertainment components like wireless Web access.
Recently, some observers have fretted about Harman's ability to sell infotainment systems if consumers opt to use their smartphones and tablets instead of relying on the embedded systems Harman develops and sells.
Harman's contract with GM shows future orders continue to roll in. Some observers say auto makers are likely to continue to support the infotainment-systems industry since those devices--which typically range in price between $500 and $3,000--often are the most-profitable part of the car.
Due to the weaker euro, Harman now sees fiscal 2013 earnings between $3.67 and $3.92 a share on revenue of $4.3 billion to $4.6 billion, below its forecast from last October of $3.75 to $4 in per-share earnings on sales of $4.55 billion to $4.8 billion. On a constant-currency basis, the company affirmed its prior target.
For the quarter ended June 30, Harman reported a profit of $49 million, or 69 cents a share, compared with a year-earlier profit of $19 million, or 26 cents a share. Excluding restructuring expenses and other impacts, adjusted earnings rose to 67 cents a share from 34 cents.
Sales jumped 6% to $1.09 billion. In local currency, sales rose 14%.
Analysts polled by Thomson Reuters expected an adjusted profit of 65 cents a share on revenue of $1.08 billion.
Gross margin widened to 27.4% from 23.8%, helped by productivity gains and because the metric last year was hurt by issues related to an earthquake and tsunami in Japan.
Harman's backlog totaled $16 billion, up 10% from a year ago, as the company signed contracts with GM, Tata Motors Ltd. (500570.BY) and Geely Automotive Holdings Ltd. (0175.HK).
Mr. Paliwal said Harman's total backlog carries double-digit margins, a sharp contrast from the low-single-digits margin the backlog held five years ago. He said the company has been highly focused on technology innovation to command premium prices, which also helps lift gross margins.
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