Logitech warns of margin hit from Red Sea crises, provides cautious long-term outlook
2min read Logitech International, a leading provider of computer peripherals, videogame accessories, and videoconferencing hardware, released its earnings report for the quarter ended in December, showing better-than-expected financial results. Despite this, its stock has seen a significant decline of 11.54% due to the company's cautious outlook for fiscal 2025.
In the December quarter, the company posted sales of $1.26 billion, a 1% decrease from the previous year but slightly above the Street consensus of $1.24 billion. Non-GAAP profits were $1.53 per share, surpassing the consensus view of $1.15 per share among analysts tracked by FactSet. Cash flow from operations increased by 58% to $443 million, with Logitech repurchasing $188 million of stock during the quarter. The sales beat is encouraging but the results did mark the ninth consecutive quarter of declining sales, which has been a point of concern for investors.
For the fiscal year ending in March 2024, Logitech revised its financial forecasts, expecting revenue to fall between $4.2 billion and $4.25 billion with non-GAAP operating income ranging from $610 million to $660 million. This marks an improvement from its previous forecast of $525 million to $575 million for non-GAAP operating income. The company's guidance implies fourth-quarter sales of $969 million, representing a 1% increase and matching analyst expectations.
Despite raising its full-year fiscal 2024 guidance, Logitech expects a 6% to 7% year-over-year decline in sales. Adjusted operating income is predicted to grow between 4% and 12%. However, this expected increase is relative to the muted results of fiscal 2023, which saw a 35% year-over-year decline in adjusted operating income.
However, the company's shareholder quarterly letter highlighted ongoing headwinds and uncertainties that may impact its net sales through FY 25.
Logitech's earnings rose by 34% in the quarterly report, while sales decreased by 1% on a year-over-year basis. Two product categories, keyboards and combos, and pointing devices, reported sales growth in the December quarter. Major categories like gaming and video collaboration faced declines.
Logitech stock hit a two-year high of $96.66 on Monday, but it dropped 11.54% to close at $84.86 on the news.
The new CEO, Hanneke Faber, mentioned in a Reuters interview that geopolitical turmoil in the Red Sea has caused a delay of about a month in getting inventory to Europe, increasing shipping costs. Although Europe accounts for only about 30% of Logitech's overall business, the potential impact on profits remains a concern for investors.
Logitech stock was trading at a two-year high before the release of its Q3 financial results, making it unsurprising that the stock pulled back from its highs given the declining sales and profitability concerns. Investors will continue to monitor the company's performance as it navigates through ongoing headwinds and uncertainties.
The technical chart for LOGI were bullish ahead of earnings, evidenced by an uptrend with consistent green candlesticks and the stock price trading above the upward-sloping 20-day, 50-day, and 200-day moving averages. The accompanying increase in trading volume supports the strength of the current trend. The Relative Strength Index is positioned above 50, suggesting positive momentum, yet remains below the overbought threshold, indicating potential for further growth without immediate overvaluation concerns.
However, the gap down in the stock is considered bearish. It can present trading opportunities for investors. While gap trading can be a lucrative strategy, it also carries risks, and investors should conduct thorough research and risk management before engaging in this type of trading.