Dolby (DLB) Q4 Earnings Beat Estimates, Revenues Miss

Dolby Laboratories, Inc. (NYSE:DLB) reported fourth-quarter fiscal 2017 adjusted earnings of 45 cents per share, comfortably beating the Zacks Consensus Estimate of 26 cents by 15.0%.

However, the company’s fourth-quarter fiscal 2017 GAAP earnings of 21 cents per share, declined 8.7% year over year. A rise in the cost of revenues as well as higher operating expenses weighed down on the bottom-line performance.

For fiscal 2017, adjusted income was $2.61 per share, indicating a rise of 7.4% from fiscal 2016 levels.

Inside the Headlines

Total revenues of $242 million came within the company’s projected range of $230-$250 million and were up 3.9% on a year-over-year basis. Healthy increase in revenues across the two segments namely, Licensing and Services contributed to the decent rise in the top line. However, revenues missed the Zacks Consensus Estimate of $244.1 million by a whisker.

For fiscal 2017, the company’s top-line grew 5.4% to $1,081.5 million, compared with the tally in fiscal 2016. Revenues also came within the company’s full-year guidance provided previously.

Dolby Laboratories Price, Consensus and EPS Surprise

Dolby Laboratories Price, Consensus and EPS Surprise | Dolby Laboratories Quote

The company’s licensing revenues were $213.4 million, up 4.9% year over year. Solid year-over-year growth in Licensing in other markets and Mobile devices sales drove the segment’s growth. Licensing in “other markets” was up a robust 55% in the reported quarter thanks to decent performance by Dolby Cinema and higher recoveries in automotive.

In the fiscal third quarter, the Services segment rose 10.4% year over year to $4.9 million. Growing demand from exhibitors for digital cinema products increased the Products and Services sales. However, Product revenues came in at $23.8 million, down 4.8% on a year-over-year basis.

During the reported quarter, operating margin of Dolby decreased 290 basis points to 9.6% mainly on account of higher expenses.

Liquidity

As of Sep 29, 2017, Dolby had cash and cash equivalents of approximately $627 million, down from $516.1 million as of Sep 30, 2016.

Also, net cash provided by operating activities came in at $371.1 million, compared with $356.8 million as of Sep 30, 2016.

Guidance

Concurrent with the market scenario, Dolby issued the guidance for first-quarter fiscal 2018 earnings and revenues. The company expects non-GAAP earnings in the range of 55-61 cents, while revenues for fiscal first quarter are anticipated to lie within $260-$270 million.

Moreover, the company projects non-GAAP gross margin to lie approximately at 89%. Similarly, operating expenses are likely to be between $156 million and $160 million, on a non-GAAP basis.

In addition, Dolby provided guidance for fiscal 2018. The company estimates total revenues to lie in the range of $1.14-$1.17 billion. It believes that new revenue streams, such as mobile revenues, Consumer Imaging, Dolby Cinema and Dolby Voice will prove conductive to revenue growth. However, softer PCs and home theater equipment sales may affect the company’s growth momentum to some extent.

Further, non-GAAP operating expenses for fiscal 2017 are projected to lie between $655 million and $665 million.

Existing Business Scenario

Dolby reported decent quarterly results with most of the key metrics topping the company’s conservative guidance range. Going forward, we believe the company’s three impressive projects, namely, Dolby Voice, Dolby Vision and Dolby Cinema, will likely accelerate growth.

Also, Dolby Cinema technology is proving to be a major profit churner for the company. Presently, there are over 360 Dolby Cinema locations globally. Dolby’s partners have been planning to roll out as many screens this year as fiscal 2017, reflecting tremendous growth prospects. However, unfavorable timing of payments poses as a threat for the company’s profitability.

Dolby currently carries a Zacks Rank #2 (Buy).

Other Stocks to Consider

Some other top-ranked stocks worth considering in the same space include G-III Apparel Group, LTD. (NASDAQ:GIII) , lululemon athletica inc. (NASDAQ:LULU) and Rogers Communication, Inc. (NYSE:RCI) . While G-III Apparel Group sports a Zacks Rank #1 (Strong Buy), lululemon athletica and Rogers Communication carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

G-III Apparel Group has a decent earnings surprise history, surpassing estimates twice in the trailing four quarters with an average beat of 3.5%.

lululemon athletica has an impressive earnings surprise history, exceeding estimates thrice in the trailing four quarters with an average beat of 8.5%.

Rogers Communication has an excellent earnings surprise history, exceeding estimates in the trailing four quarters with an average beat of 6.0%.

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