Logitech Results Highlight PC Hardware Weakness

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With earnings season upon us, the tech sector is once again a fascinating battle-ground. Tech earnings have been a bit of a mixed bag this time round, with blowout earnings from Google but disappointing results from Apple. Logitech (NASDAQ: LOGI) however bombed out big-time with a sizable loss for Q3 2013, which highlights weakness across the board for PC hardware manufacturers which is largely due to the rise of mobile computing devices.

Stock Overview

Logitech is one of the world’s largest producers of PC peripherals, as well as being active in the Video Conferencing segment. The company has a market cap of $1.2 billion and around 9000 employees. The stock has a fairly volatile beta of 1.81. While the stock has a huge annual trailing dividend of 11.1%, this is accompanied by an unsustainable 166% payout rate. In the last twelve months the stock price is down 7.76%.

Earnings Miss

Logitech missed EPS estimates badly with a surprise loss in Q3 2013. The company posted a net loss of $195 million, or $1.24 per share, versus an estimate of $0.31 profit per share. Sales were down 14% compared to same period a year ago and gross margin was down 2%. OEM sales were hit especially hard down 23%. Excluding a non-cash goodwill impairment charge announced this month, non-GAAP operating income would have been $31 million. According to management continued weakness in the global PC market was to blame for the poor performance, and the company is taking immediate action to address the situation with a greater focus on mobility-related products and cost cutting measures.

Logitech is far from the only PC hardware manufacturer going through tough times at the moment. While not a direct competitor, Dell (NASDAQ: DELL) is another company that has felt the pinch recently, having had 22.5% shaved off its stock price in the last twelve months largely as a result of disappointing earnings. In the most recent report Dell missed by a penny with an 11% decrease in revenue as desktop and mobility sales contracted. The company is now in talks over a buyout with US private equity firm Silver Lake and IT giant Microsoft.

Valuations and Metrics

Logitech currently trades at 14.55x earnings, which appears to be more or less on par with the industry. The forward P/E is also quite reasonable at 12.9x. Price to sales is only 0.53 and price to book is low at 1.27. The company has an operating margin of around 4% and a return on equity just over 8%. It also has a fairly decent balance sheet with almost $240 million in cash and no debt on the books.

Bottom Line

Logitech’s most recent earnings report is another piece of evidence that computer hardware manufacturers are on the decline. With sales down across the board and a sizable loss, things indeed seem to be going badly for the PC peripheral maker. In general, investors would be wise to exercise additional diligence in considering going long anywhere in the industry as its prospects appear to be diminishing rapidly. 

DUJames has no position in any stocks mentioned. The Motley Fool recommends Logitech International SA (USA). The Motley Fool owns shares of Logitech International SA (USA). Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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