HARMAN Reports Second Quarter Fiscal Year 2013 Results

HARMAN Reports Second Quarter Fiscal Year 2013 Results

  • Second quarter net sales of $1.056 billion; operating income of $68 million
  • Strong balance sheet with $1.35 billion in available liquidity
  • Implementing restructuring initiatives to achieve annualized savings of approximately $30-$35 million
  • Won twenty product innovation and design awards across three continents
  • Launching high-margin recurring revenue infotainment services business

STAMFORD, Conn.--(BUSINESS WIRE)-- HARMAN International Industries, Incorporated, the leading global audio and infotainment group (NYS: HAR) , today announced results for the second quarter ended December 31, 2012. HARMAN also announced today plans to launch an infotainment services business as well as restructuring initiatives to further reduce operating costs.

Dinesh C. Paliwal, the Company's Chairman, President and CEO, said, "Our results during the second quarter did not meet our expectations. To enhance returns for our shareholders, we are taking the right steps to reduce costs, continue to drive innovation and expand our portfolio to achieve profitable growth. Economic headwinds and the slow-down in the automotive sector in Europe created a difficult operating environment for HARMAN during the second quarter, and we expect these conditions to continue for the first half of calendar year 2013. Despite these challenges, we will continue to aggressively execute on all four of our strategic pillars to strengthen the Company's competitiveness over the long-term. Our fundamental strategy remains unchanged and with higher margin order backlog we continue to believe that Fiscal 2014 and 2015 will be strong years for HARMAN."


Net sales for the second quarter were $1.056 billion, a decrease of 6 percent compared to the same period last year. In local currency, net sales decreased by 4 percent compared to the same period last year primarily as a result of the economic slow-down in Europe, which significantly impacted automotive production. Sales in the Professional Division were similarly affected by the recession in Europe, as well as by capital project delays during the quarter pending the outcome of presidential elections in the USA and China.

Second quarter operating income was $68 million, compared to $95 million in the same period last year. Excluding restructuring and non-recurring charges, operating profit in the second quarter was $57 million, compared to $96 million in the same period last year.

Non-GAAP earnings per diluted share were $0.59 for the quarter compared to $0.83 in the same period last year. GAAP earnings per diluted share were $0.68 for the quarter compared to $0.82 in the same period last year. During the second quarter, on a GAAP basis, the Company reduced its contingent consideration accrual related to the acquisition of MWM Acoustics, now known as HARMAN Embedded Audio LLC, by $12.5 million.

 
FY 2013 Key Figures - Total Company             Three Months Ended December 31       Six Months Ended December 31
                             

Increase
(Decrease)

                     

Increase
(Decrease)

$ millions (except per share data)            

3M
FY13

     

3M
FY12

     

Including
Currency
Changes

     

Excluding
Currency
Changes1

     

6M
FY13

     

6M
FY12

     

Including
Currency
Changes

     

Excluding
Currency
Changes1

Net sales             1,056         1,127         (6 %)       (4 %)       2,054         2,178         (6 %)       (1 %)
Gross profit             272         306         (11 %)       (9 %)       550         593         (7 %)       (3 %)
Percent of net sales             25.7 %       27.1 %                       26.8 %       27.2 %                
SG&A & Other             203         210         (3 %)       (1 %)       403         424         (5 %)       (1 %)
Operating income             68         95         (28 %)       (26 %)       147         170         (13 %)       (9 %)
Percent of net sales             6.5 %       8.5 %                       7.2 %       7.8 %                
Net Income             47         59         (20 %)       (16 %)       102         108         (5 %)       1 %
Diluted earnings per share             0.68         0.82                         1.47         1.49                  
Restructuring-related costs             (12 )       1                         (11 )       3                  

Non-GAAP

                                                                     
Gross profit(1)             273         306         (11 %)       (9 %)       551         595         (7 %)       (3 %)
Percent of net sales(1)             25.8 %       27.1 %                       26.8 %       27.3 %                
SG&A & Other(1)             216         210         3 %       5 %       415         423         (2 %)       3 %
Operating income(1)             57         96         (41 %)       (39 %)       136         172         (21 %)       (17 %)
Percent of net sales(1)             5.4 %       8.5 %                       6.6 %       7.9 %                
Net Income(1)             41         60                         96         110         (13 %)       (7 %)
Diluted earnings per share(1)             0.59         0.83         (31 %)       (28 %)       1.38         1.52                  
Shares outstanding - diluted (in millions)             70         72                         70         72                  
1 A non-GAAP measure, see reconciliations of non-GAAP measures later in this release.                                
 

Summary of Operations - Gross Margin and SG&A

Non-GAAP gross margin for the second quarter of fiscal 2013 decreased 130 basis points to 25.8 percent. The decline was primarily due to the impact of lower sales volume on fixed production costs.

SG&A and Other expense as a percentage of sales on a non-GAAP basis in the second quarter of fiscal 2013 increased 190 basis points to 20.5 percent. This change was primarily related to lower sales volume on fixed costs.

Operational Restructuring to Improve Financial Results

HARMAN is implementing restructuring initiatives, which we expect will improve the Company's operating performance. HARMAN will reduce approximately 500 jobs in high cost countries, resulting in annual operational savings of approximately $30-$35 million beginning in fiscal year 2014. The Company expects to record a restructuring charge of approximately $30-35 million in the second half of fiscal year 2013.

The Company is also evaluating the sale or closure of a manufacturing site in Europe, which would reduce an additional 500 jobs.

"These restructuring efforts will allow HARMAN to reduce costs and compete more effectively," said Mr. Paliwal. "Rebalancing our workforce is a difficult, but necessary, step that HARMAN is implementing to deliver improved financial results through the European economic and automotive cycle recovery."

Launching of Infotainment Services

The Company today announced it will launch HARMAN Infotainment Services that will leverage the installed base of over 15 million HARMAN infotainment-equipped vehicles on the road today to create a fast growing, recurring revenue stream with high margins.

OEMs and car owners are seeking to keep their vehicle infotainment systems current and connected. HARMAN Infotainment Services will offer 4G/LTE connected head-unit upgrades for vehicles currently on the road; cloud-based services to the car (such as Aha by HARMAN); and customer relationship management (CRM) services for automakers using vehicle-specific aggregated data.

"The launch of our Infotainment Services business will create a new revenue stream less dependent on automotive production cycles and drive consistent revenue with two to three times higher margins than the current Infotainment systems business," said Mr. Paliwal.

The Company expects service business to grow fivefold within the next five years from current levels of approximately $100 million.

2013 Outlook

HARMAN today provided an updated outlook regarding its financial targets for fiscal 2013. In light of lower European automotive production volumes and a weaker global economic climate, the Company now forecasts global revenue between $4.175 billion and $4.250 billion and operational earnings per share between $2.70 and $2.90. Details by division are provided below.


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Fiscal Year 2013       HARMAN       Infotainment Division       Lifestyle Division       Professional Division
Sales       $4.175 - $4.250 billion    
TWX +0.64 84.49

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