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Why Is Knowles (KN) Down 8.8% Since Last Earnings Report?

It has been about a month since the last earnings report for Knowles (KN). Shares have lost about 8.8% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Knowles due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Knowles Q2 Earnings Beat Estimates, Revenues Miss

Knowles reported mixed second-quarter 2022 results, wherein the bottom line beat the Zacks Consensus Estimate but the top line missed the same.

The company is focused on delivering high-value, differentiated solutions to a diverse set of growing end markets to expand its gross margin.

Net Income

On a GAAP basis, the loss in the quarter was $242.9 million or loss of $2.64 per share against a net income of $17.6 million or 19 cents per share in the prior-year quarter.


Non-GAAP net income was $ 31.7 million or 33 cents per share compared with $30.1 million or 31 cents per share in the year-ago quarter. The bottom line beat the Zacks Consensus Estimate by 2 cents.

Revenues

Due to macroeconomic headwinds, quarterly revenues fell 5.9% year over year to $188 million. The top line missed the consensus estimate of $200 million.

Audio revenues fell 14.2% year over year to $128.5 million due to weak computing and mobile market demand and supply chain headwinds. The segment’s gross profit was $50.4 million compared with $63.3 million in the prior-year quarter. This was due to COVID lockdowns in China and excess PC and smartphone channel inventory.

Precision Devices revenues jumped 19% to $59.5 million, driven by strong organic growth in defense, industrial and medtech markets. Gross profit was $27.7 million compared with $20.8 million in the year-ago quarter.

Other Details

Cost of goods sold decreased to $110.3 million from $116.1 million year over year. Gross profit declined to $77.7 million from $83.7 million for a margin of 41.3% and 41.9%, respectively. Total operating expenses were $292.3 million compared with $61.4 million in the prior-year quarter. Operating loss came in at $214.6 million against an operating income of $22.3 million a year ago.

Cash Flow & Liquidity

During the first six months of 2022, Knowles generated $ 20.4 million from operating activities compared with $61 million in the prior-year period. As of Jun 30, 2022, the company had $47.7 million in cash and cash equivalents with $73 million of long-term debt..

Q3 Outlook

Knowles has guided for the third quarter. The company is accelerating its strategy to reduce exposure to lower-margin commodity microphones. It expects non-GAAP revenues in the range of $170-$185 million. Non-GAAP gross profit margin is estimated within 37-39%. Non-GAAP earnings are projected in the band of 17-21 cents per share.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates.

The consensus estimate has shifted -71.43% due to these changes.

VGM Scores

At this time, Knowles has an average Growth Score of C, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. It's no surprise Knowles has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.


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