Harman International Industries, Incorporated (NYSE: HAR), the premier connected technologies company for automotive, consumer and enterprise markets, today announced results for the second quarter ended December 31, 2016.
Net sales for the second quarter were $1.95 billion, an increase of 10 percent,11 percent excluding the impact of foreign exchange (Ex-FX), compared to the prior year. Lifestyle Audio net sales increased 19 percent due to higher sales in both consumer and car audio. Connected Services net sales increased 13 percent primarily due to higher demand for automotive services. Connected Car net sales increased four percent due to stronger production and the expansion of recently launched programs. Professional Solutions net sales increased three percent primarily due to stronger sales in Asia.
On a GAAP basis, second quarter operating income increased nine percent to $174 million compared to $159 million in the prior year, and EBITDA increased four percent to $227 million compared to $217 million in the prior year. During the quarter, the Company recognized approximately $23 million of non-recurring incremental U.S. income tax from deemed income on foreign earnings. As a result, earnings per diluted share decreased 11 percent to $1.39 compared to $1.55 in the prior year.
Non-GAAP Operating income increased 22 percent to $228 million compared to $186 million in the prior year, and EBITDA increased 19 percent to $268 million compared to $225 million in the prior year, excluding restructuring, acquisition-related items, costs associated with the pending Samsung transaction and one-time stock compensation costs. Earnings per diluted share increased 20 percent to $2.22 compared to $1.84 in the prior year.
Dinesh C. Paliwal, the Company’s Chairman, President and CEO said, “HARMAN delivered solid second quarter results, including double digit revenue, EBITDA and EPS growth led by strong performance in our Lifestyle Audio division. Additionally, we continue to leverage our success in Connected Car and Connected Services to develop broader end-to-end solutions for immersive and personalized experiences.
“The pending acquisition of HARMAN by Samsung will accelerate connected and autonomous driving innovation and technology deployment faster than if HARMAN were to remain a standalone company. The transaction also delivers immediate and compelling cash value to our shareholders. We remain on track to close the transaction in mid-2017.”
Summary of Operations – Gross Margin and SG&A
On an operational basis, gross margin for the second quarter of fiscal year 2017 increased 50 basis points to 31.3 percent, primarily due to the impact of higher sales volume leveraging a more efficient fixed production cost base. Operational SG&A expenses as a percent of net sales decreased 70 basis points to 19.6 percent compared to 20.3 percent in the prior year due to favorable product mix.
On a GAAP basis in the second quarter of fiscal year 2017, gross margin increased 40 basis points to 31.2 percent. SG&A expenses as a percent of net sales increased 50 basis points to 22.3 percent compared to 21.8 percent in the prior year, primarily due to higher restructuring expenses.
Withdrawal of Guidance and Suspension of Conference Calls
As announced on November 14, 2016, Samsung Electronics, Co. Ltd. (“Samsung”) and Harman International Industries, Incorporated (“HARMAN”) entered into a definitive agreement under which Samsung will acquire HARMAN for $112 per share in cash. On January 20, 2017, HARMAN filed a definitive proxy statement with the U.S. Securities and Exchange Commission in connection with a special meeting of its stockholders to consider the adoption of the merger agreement. The special meeting is scheduled to be held on February 17, 2017.
In light of the pending transaction, HARMAN is withdrawing its financial outlook and will not be hosting earnings conference calls.
