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Logitech Q3 Preview: PC Weakness Should Weigh On Earnings

 January 22, 2013 08:57 PM
 


(By Mani) Logitech International SA (NASDAQ: LOGI) is expected to report a 3 percent drop in earnings on 6.5 percent drop in sales when it reports its third quarter results on Jan.23.

Switzerland-based Logitech  is known for computer mouse and other electronic peripherals, and is finding it difficult to diversify its core business from PCs as tablets are replacing notebooks and desktops.

The company had warned of continued strong headwinds in all of its PC-related categories in the second half of 2013. Moreover, it expects the weakness to more than offset the positive impact of new product launches. The company added that it now expects sales and operating income for the second half to be below that of the year-ago period.

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Wall Street, on average, expects Logitech to report earnings of 31 cents a share on revenue of $667.87 million, according to analysts polled by Thomson Reuters. In the same period last year, LOGI earned 32 cents a share on revenue of $714.60 million.

During the past four quarters, the company's earnings have managed to top Street view twice. The consensus view has come down from 40 cents in the past 90 days.

Quarterly revenues are expected to remain almost flat with last year at $1.13 billion, driven by competitive pressures and weak carrier spending. The company has recorded single-digit revenue drop three times in the preceding four quarters

For the second quarter ending Sept. 30, Logitech reported net income of $54.87 million or 35 cents per share, up from $17.45 million or 10 cents per share in the prior-year quarter. Results for the latest quarter included a net tax benefit of $32 million from the closure of an income tax audit. However, net sales for the quarter decreased 7 percent to $547.69 million.

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Investors and analysts would look for company comments on its strategy to boost its non-PC business and revive its PC-related sales. Logitech has taken baby steps in the tablet market by providing accessories such as iPad cases and keyboards, but that may not help the company in stemming the sales drop.

In the conference call, analysts could ask whether it is seeking any disposal of non-core assets such as videoconferencing tool LifeSize as the move may strengthen the balance sheet. Such potential proceeds could be either returned to shareholders in the form of dividends or share buybacks.

In addition, the PC weakness could spread into the fourth quarter as well, with analysts expecting 29 percent drop in earnings and 2.9 percent drop in sales.

As a result, iStock believes that investors should remain on the sidelines until the company records significant upside in its non-PC business, which that may not happen in the near-term.
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