The Zacks Analyst Blog Highlights: Harman International Industries, Rockford, Panasonic, Sony and Ford Motor

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Oct 24, 2011, 09:30 ET

CHICAGO, Oct. 24, 2011 /PRNewswire/ -- Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: Harman International Industries Inc. (NYSE: HAR), Rockford Corp. (OTC: ROFO), Panasonic Corp. (NYSE: PC), Sony Corp. (NYSE: SNE) and Ford Motor Co. (NYSE: F).

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Here are highlights from Friday's Analyst Blog:

Harman Reports Stellar 1Q

A developer of audio products and electronic systems, Harman International Industries Inc. (NYSE: HAR) reported first quarter 2012 earnings of 69 cents per share, comprehensively beating the Zacks Consensus Estimate of 50 cents. Earnings per share (EPS) surged 97.0% year over year from 35 cents.

Operating Performance

Gross profit increased 29.4% year over year to $289.3 million. Gross margin increased 80 basis points (bps) to 27.5% in the quarter. The increase was driven by strong growth in the Infotainment division arising from higher demand and sales price increase, which was more than enough to offset higher neodymium costs.

Gross margin for the Infotainment division increased 500 bps to 23.9% in the reported quarter. However, the same for Consumer division and Professional division decreased 420 bps and 230 bps, respectively, in the reported quarter.

Selling, general and administrative (SG&A) expense increased 17.6% year over year to $214.0 million in the first quarter. However, SG&A as a percentage of revenue declined 130 bps to 20.4% in the reported quarter driven by productivity improvement across the company's cost base.

Operating income was up 91.5% year over year to $76.2 million. Operating margin expanded 250 bps to 7.3% based on a higher gross profit base and lower SG&A expense. Net income was $49.8 million, up 97.6% year over year from $25.2 million reported in the prior-year quarter.

Outlook

Harman expects robust operating margin growth going forward (2013-2014), based on the strong performance of infotainment business. Harman expects to outperform the overall automotive sector going forward given the increasing adoption rate in emerging markets of Brazil, Russia, India and China.

Recommendation

Harman is doubling its manufacturing capacity in Hungary, China and Mexico, which will help the company address the growing demand for Automotive and Professional products. Harman boasts a solid product pipeline that is supported by more than 3500 patents, and the company intends to roll out new infotainment products in order to further drive sales.

However, Harman continues to face tough competition from Bose Corp., Boston Acoustics Inc., Pioneer Corp., Yamaha Corp., Rockford Corp. (OTC: ROFO), Panasonic Corp. (NYSE: PC) and Sony Corp. (NYSE: SNE), which may hurt its profitability going forward.

Harman shares have decreased 25.2% year to date compared with a 4.4% decline in S&P 500. We believe the strong first quarter results are already priced in the stock. We expect the stock to remain range bound due to the sluggish macro economic environment in the near term.

We maintain our Underperform recommendation on a long-term basis (6-12 months). Currently, Harman has a Zacks #4 Rank, which implies a Sell rating on a short-term basis (1-3 months).

Ford May Reinstate Dividend

Ford Motor Co. (NYSE: F) is considering reinstating dividend payments for its shareholders as the company expects to benefit from labor efficiency improvements resulting from the newly ratified 4-year contract with United Auto Workers (UAW).

The automaker revealed that the UAW contract would increase its labor costs less by than 1% annually, the smallest increase in four decades. Its hourly labor costs, including wages and benefits, will rise to $59.00 from $58.00.

Meanwhile, entry-level wages will rise to $19.28 per hour from $15.78 per hour by 2015. However, wages of senior workers would not be raised, who gets $28.00 per hour presently.

Under the deal, Ford also promised to invest $6.2 billion in U.S. plants creating 5,750 jobs. Thus, the automaker would add 12,000 jobs in the U.S. until 2015 after adding 6,250 jobs previously announced by the company.

The automaker will also give bonuses totaling $10,000 and profit-sharing payments to its 40,600 workers in the U.S. this year. However, the company expects higher bonus payments will be offset by efficiency gains resulting from flexibility in work rules under the new contract.

Ford also plans to lower its labor costs further by offering buyouts to high-paid workers. The company is offering $50,000 buyouts to production workers and $100,000 buyouts to skilled-trade employees. It has estimated that about 900 to 1,000 of its skilled-trade workers will accept the buyout.

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