Logitech International (LOGI) announced financial results for the third quarter of fiscal year 2009. Sales for Q3-09 were $627 million (as compared to our estimate of $637 million and the average Street estimate of $699 million), a decrease of 16 percent versus $744 million in the same quarter last year.
Operating income was $43 million, a decrease of 63 percent compared to $116 million in the same quarter a year ago. Net income was $40 million - = $0.22 per share - (as compared to our estimate of $0.39 per share and the average Street estimate of $0.43) versus Q3-08 net income of $134 million - = $0.71 per share - which included a net realized gain on sales of short-term investments of $27.8 million and an impairment loss of $5.5 million on the value of short-term investments. Gross margin for the Q3-09 was 29.9 percent compared to 36.9 percent in Q3-08.
Logitech's retail sales for Q3-09 declined 16 percent year-over-year, with sales down by 21% in the Americas and 19% in Europe, Middle East & Africa, while sales were up by 8% in Asia; OEM (original equipment manufacturer) sales were down by 11 percent.
The Company indicated that the deepening global recession had a significant impact on its operating performance as its customers continued to reduce inventory levels in the face of weaker consumer demand. Further, there were two factors - resulting from current economic circumstances - which were the primarily contributors to the decline in LOGI's gross margin from last year's record high: the negative impact of a significantly stronger dollar, and a retail environment that was highly-promotional, particularly in the Americas.
During the quarter, the Company was able to scale back its operating expenses in anticipation of the challenging environment. Further, it continued to generate positive operating cash flow, ending the quarter with nearly half a billion dollars in cash.
The Company anticipates an even weaker retail environment in the coming months. Consequently, its plans assume that, in Q4-09, year-over-year sales will decline and operating income - before restructuring charges - and gross margin will be similar to or worse than the year-over-year declines experienced in Q3-04.
However, the Company expects to continue to generate positive cash flow from operations as it focuses on preserving the strength of its balance sheet. Moreover, it is anticipated that the substantial steps it is taking to align its cost structure with the current environment, combined with a continued emphasis on product innovation, will position the Company to successfully manage through this downturn and emerge stronger when the recovery begins.
In this regard, Logitech has initiated a restructuring that is expected to reduce the Company's global salaried workforce by between 550 and 600 employees. This plan is expected to generate annual cost savings beginning in fiscal year 2010 of approximately $50 million. As a result of the restructuring, the Company expects to incur a total charge of approximately $20-24 million over the next twelve months, of which approximately $16-18 million is expected to be incurred during the fourth quarter of FY 2009.
That said, Zacks reaffirms its January 14, 2009 Sell recommendation on LOGI.
