On Thursday, August 14 after-hours, Harman International Industries, Inc. (HAR) reported Q4 net income of $31.7 million or $0.54 per share on $1.07 billion in revenue vs. $105 million or $1.58 per share a year ago, down 70% (see earnings call transcript). Excluding items (restructuring, merger and tax related), HAR reported $0.68 per share vs. $0.98 per share a year ago, down 31%. Analysts expected $0.77 per share, widely missing expectations by $0.09 per share. Share on August 12 opened at $38.60, 10% lower, and drifted down throughout the day, closing at $37, down $6 or 14%.
HAR has 3 divisions: Consumer, Professional, and Automotive. Consumer sales were up 7% to $531 million. Professional sales were up 9% to $611 million. Automotive sales were up 19% to $2.97 billion. Higher sales in the Automotive division were contributed by a partnership with Chrysler as well as increased demand from European automakers such as BMW and Audi. However, weakness in the U.S. and increased domestic and foreign competition contributed to slower sales volume in the Consumer division as they reported an $8 million decrease in sales, or down 7% vs. a year ago. Growth in the Professional division was fueled by new projects, such as installations at the Indianapolis Colts’ Lucas Field, Planet Hollywood Resort & Casino in Las Vegas, as well as several dozen locations at the 2008 Olympics in Beijing.
HAR is making a dramatic shift in strategically opening, transferring, and closing several manufacturing and distribution plants. Plants in Northridge, CA, Martinsville, IN, and Bedford, MA and South Africa have been closed. Operations in Motala, Sweden have been downsized. HAR has expanded operations in Tijuana, Mexico and Szekesfehervar, Hungary and opened a new plant in Suzhou, China. The restructuring is part of a 2-year strategic productivity improvement program called “STEP Change”. Management expects to yield a $400 million savings into 2010.
Remember the failed $8 billion takeover bid in the fall of last year? Things got from bad to worse to ugly. Auto sales have sharply declined since last year, putting tremendous pressure on the Automotive division. In addition, the Consumer division is also suffering since the consumer has cut back on non-essential purchases. The trends in the auto industry and consumer behavior will be prolonged as long as the housing, credit, and inflationary crises subside.
For fiscal 2008, HAR earned $108 million or $1.73 per share on $4.1 billion vs. $314 million or $4.72 per share a year ago. Excluding items (one-time), yearly earnings came in at $2.35 vs. $4.14 a year ago, down 43%. Since they know that a quick recovery is out of question, HAR announced that they see the fiscal 2009 to be a challenging year.
5 analysts publish recommendations on HAR. Currently, there is 1 “Buy” rating and 4 “Hold” ratings. On August 18, 2008, Robert Baird downgraded HAR to “Neutral” from “Outperform” and reduced their price target to $38 from $55. Credit Suisse reiterated their “Neutral” rating, but cut their price target to $34 from $45. Finally, RBC Capital Markets reiterated their “Sector Perform” rating and reduced their price target to $38 from $44.
In the past 12 months, insiders purchased 4,500 shares and sold 16,000 shares. Institutions have sold a net 10.02 million shares, a 30.1% change.
Technically, HAR broke down via breakaway gap past the bottom end of its range (major support: $35-$37). This signals that HAR still has additional downside (although looking at a long-term chart, it seems hard to believe). The MACD and RSI both indicate a bearish trend and the volume pattern signals that the stock is under heavy distribution. On November 15, 2004, shares hit a new high at $131.42, and the stock has never seen that level since. On Monday, shares hit a 5-year low. I wouldn’t go long HAR, unless it can pull itself back into the range. I also wouldn’t go short quite yet; give HAR a few days to clear the dust.
click to enlarge charts
Short, Intermediate-Term Chart: 8 months
Long-Term Chart: 3 years