On Friday, Susquehanna maintained a neutral stance on Knowles Corp (NYSE:KN) shares, while reducing the price target to $19 from the previous $20. The adjustment followed the company’s report, which showed better-than-anticipated results and outlook, largely driven by its Precision Devices (PD) segment.
Knowles has experienced a boost in profitability following the divestiture of its Consumer MEMS Microphones (CMM) business, with expectations for continued margin improvement into 2025.
The company’s PD segment performed slightly above expectations, thanks to strong results in the Defense and Electrification markets. However, this was balanced by higher channel inventory levels in the Industrial and Distribution sectors.
Knowles anticipates modest sequential growth, propelled by Defense and MedTech sectors, while Industrial and Electrification are projected to remain stable as the year progresses into the fourth quarter.
Looking ahead to 2025, Knowles has highlighted a robust pipeline of new opportunities across various end markets and anticipates a rebound in the Industrial sector. Management emphasized a significant improvement in Cornell GM of 500 basis points since the first quarter of 2024, with further margin expansion expected to be driven by price increases and better capacity utilization.
The Medtech & Specialty Audio (MSA) segment also exceeded expectations for the third quarter. The company predicts sequential growth in MSA due to seasonal trends and new product launches in the hearing market, despite the estimate being slightly below the previous one.
Moreover, Knowles mentioned software updates to the AirPods Pro 2, which now include features akin to over-the-counter hearing aids, potentially enlarging the total addressable market.
In terms of acquisitions, Knowles confirmed that the CMM acquisition is on track to close in the fourth quarter of 2024 and that the company is actively seeking new M&A opportunities. Gross margins have seen a significant increase, largely due to the sale of the CMM business. The forthcoming Investor Forum in the first quarter of 2025 is expected to provide further insights into the company’s growth strategies.
In other recent news, Knowles Corporation has reported several significant developments. The company recently announced an 18% year-over-year increase in revenues for the second quarter of 2024, reaching $205 million, driven by a substantial 55% revenue surge in the Precision Devices segment.
Knowles also confirmed the sale of its Consumer MEMS Microphone (CMM) business to Syntiant Corp for $150 million, a strategic move that Baird analysts believe could reshape the company's focus and bolster its financial standing.
In addition, Baird increased the price target for Knowles shares to $25.00, up from the previous target of $20.00, maintaining an Outperform rating following the sale of the CMM business. Knowles' MIL-PRF-55681 capacitors also met the stringent standards of the Defense Logistics Agency for defense and aerospace applications, earning a place on the U.S. Department of Defense's Qualified Products List.
The company also announced the resignation of Erania Brackett from the Knowles Corporation Board of Directors following a change in her principal employment.
Lastly, the company updated its financial outlook, with third-quarter revenues from continuing operations expected to range from $139 to $143 million, and non-GAAP diluted earnings per share from continuing operations projected at $0.24 to $0.28. These are the recent developments for Knowles Corporation.
InvestingPro Insights
Knowles Corp's recent performance and future outlook can be further illuminated by data from InvestingPro. The company's market capitalization stands at $1.52 billion, with a revenue of $791.4 million for the last twelve months as of Q2 2024, showing a growth of 14.27%. This aligns with the article's mention of better-than-anticipated results and outlook.
InvestingPro Tips highlight that management has been aggressively buying back shares, which could be seen as a vote of confidence in the company's future prospects. This is particularly relevant given Knowles' focus on margin improvement and growth strategies mentioned in the article.
Another InvestingPro Tip notes that the company's valuation implies a strong free cash flow yield. This could be attractive to investors, especially considering Knowles' ongoing margin improvements and potential for growth in various sectors as outlined in the article.
For readers interested in a deeper analysis, InvestingPro offers 7 additional tips for Knowles Corp, providing a more comprehensive view of the company's financial health and market position.
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