STAMFORD, CT – Harman International Industries, Incorporated (NYSE: HAR), the premier connected technologies company for automotive, consumer and enterprise markets, today announced results for the first quarter ended September 30, 2016.
Net sales for the first quarter were $1.8 billion, an increase of eight percent compared to the prior year. Lifestyle Audio net sales increased 19 percent due to higher sales in both consumer and car audio. Connected Car net sales increased six percent due to higher take rates and stronger production. Connected Services net sales increased four percent primarily due to higher demand for automotive services, while Professional Solutions net sales decreased three percent.
On a GAAP basis, first quarter operating income increased 15 percent to $151 million compared to $131 million in the prior year, and EBITDA increased seven percent to $202 million compared to $188 million in the prior year. Earnings per diluted share increased 20 percent to $1.45 compared to $1.20 in the prior year.
Excluding restructuring, acquisition-related items and non-recurring charges, first quarter operating income increased 19 percent to $187 million compared to $158 million in the prior year, and EBITDA increased 15 percent to $227 million compared to $197 million in the prior year. Earnings per diluted share increased 27 percent to $1.87 compared to $1.48 in the prior year.
“HARMAN delivered a solid first quarter, with strong revenue growth and outstanding EBITDA and EPS performance. We secured $2 billion in new automotive awards in the quarter, demonstrating increasing demand from automakers and their drivers for a rich in-car experience, including embedded infotainment, cloud connectivity and sound management solutions. With cyber security an underlying and fundamental component of the connected car and autonomous driving, I am proud to add that NHTSA and the University of Michigan rated HARMAN’s suite of intrusion detection and mitigation technologies as the best performing solution,” said Dinesh C. Paliwal, the Company’s Chairman, President and CEO.
Continued Paliwal, “On top of our strong automotive performance, HARMAN’s strong brands and award-winning design are driving market share gains with our consumer audio products. We remain focused on innovation, execution and driving cost leadership in all of our businesses, and are on track to meet our fiscal 2017 guidance.”
Summary of Operations – Gross Margin and SG&A
On an operational basis, gross margin for the first quarter of fiscal year 2017 increased 80 basis points to 30.8 percent. The improvement was primarily due to the impact of higher sales volume leveraging a more efficient fixed production cost base. Operational SG&A expense as a percent of net sales decreased 20 basis points to 20.1 percent compared to 20.3 percent in the prior year.
On a GAAP basis in the first quarter of fiscal year 2017, gross margin increased 90 basis points to 30.8 percent. SG&A expense as a percent of net sales increased 40 basis points to 22.2 percent compared to 21.8 percent in the prior year, primarily due to higher restructuring expenses.
Investor Call Today November 3, 2016
At 11:00 a.m. EDT today, HARMAN’s management will host an analyst and investor conference call to discuss the first quarter results. Those who wish to participate via audio in the earnings conference call should dial 1 (800) 410-1397 (U.S.) or +1 (303) 223-4381 (International) ten minutes before the call and reference HARMAN, Access Code: 21819781.
In addition, HARMAN invites you to visit the Investors section of its website at: www.harman.com where visitors can sign-up for email alerts and conveniently download copies of historical earnings releases and supporting slide presentations, among other documents. The fiscal first quarter earnings release and supporting materials were posted on the site at approximately 8:00 a.m. EDT today.
A replay of the call will also be available following its completion at approximately 1:00 p.m. EDT. The replay will be available through Friday, February 3, 2017 at 1:00 p.m. EDT. To listen to the replay, dial 1 (800) 633-8284 (U.S.) or +1 (402) 977-9140 (International), Access Code: 21819781. If you need technical assistance, call the toll-free Global Crossing Customer Care Line at 1 (800) 473-0602 (U.S.) or +1 (303) 446-4604 (International).
HARMAN (harman.com) designs and engineers connected products and solutions for automakers, consumers, and enterprises worldwide, including connected car systems, audio and visual products, enterprise automation solutions; and connected services. With leading brands including AKG®, Harman Kardon®, Infinity®, JBL®, Lexicon®, Mark Levinson® and Revel®, HARMAN is admired by audiophiles, musicians and the entertainment venues where they perform around the world. More than 25 million automobiles on the road today are equipped with HARMAN audio and connected car systems. The Company’s software services power billions of mobile devices and systems that are connected, integrated and secure across all platforms, from work and home to car and mobile. HARMAN has a workforce of approximately 30,000 people across the Americas, Europe, and Asia and reported sales of $7.0 billion during the 12 months ended September 30, 2016. The Company’s shares are traded on the New York Stock Exchange under the symbol NYSE:HAR.
A reconciliation of the non-GAAP measures included in this press release to the most comparable GAAP measures is provided in the tables contained at the end of this press release. HARMAN does not intend for this information to be considered in isolation or as a substitute for other measures prepared in accordance with GAAP.
Except for historical information contained herein, the matters discussed in this earnings release are forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. One should not place undue reliance on these statements. The Company bases these statements on particular assumptions that it has made in light of its industry experience, as well as its perception of historical trends, current market conditions, current economic data, expected future developments and other factors that the Company believes are appropriate under the circumstances. These statements involve risks, uncertainties and assumptions that could cause actual results to differ materially from those suggested in the forward-looking statements, including but not limited to: (1) the loss of one or more significant customers, the loss of a significant platform with an automotive customer or the in-sourcing of certain services by the Company’s automotive customers; (2) the Company’s ability to maintain a competitive technological advantage through innovation and leading product designs; (3) the Company’s ability to maintain profitability if there are delays in its product launches or increased pricing pressure from its customers; (4) fluctuations in currency exchange rates, particularly with respect to the value of the U.S. Dollar and the Euro; (5) the inability of the Company’s suppliers to deliver materials, parts and components including, without limitation, microchips and displays, at the scheduled rate and disruptions arising in connection therewith; (6) fluctuations in the price and supply of raw materials including, without limitation, petroleum, copper, steel, aluminum, synthetic resins, rare metals and rare-earth minerals, or shortages of materials, parts and components; (7) the Company’s failure to protect the security of its products and systems against cyber crime; (8) the Company’s failure to maintain the value of its brands and implementing a sufficient brand protection program; and (9) other risks detailed in the Harman International Industries, Incorporated Annual Report on Form 10-K for the fiscal year ended June 30, 2016 and other filings made by the Company with the Securities and Exchange Commission. The Company undertakes no obligation to publicly update or revise any forward-looking statement except as required by law.
This earnings release also makes reference to the Company’s awarded business or “backlog”, which represents the estimated future lifetime net sales for all of the Company’s automotive customers. The Company's awarded business does not represent firm customer orders. The Company reports its awarded business primarily based on written award letters. To validate these awards, the Company uses various assumptions including global vehicle production forecasts, customer take rates for the Company’s products, revisions to product life cycle estimates and the impact of annual price reductions and exchange rates, among other factors. The term “take rate” represents the number of units sold by the Company divided by an estimate of the total number of vehicles of a specific vehicle line produced during the same timeframe. The assumptions the Company uses to validate these awards are updated and reported externally on an annual basis.