A month has gone by since the last earnings report for Dolby Laboratories (DLB). Shares have lost about 7.2% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Dolby Laboratories due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Dolby reported first-quarter fiscal 2025 results, with non-GAAP earnings per share (EPS) of $1.14 compared with $1.01 reported in the prior-year quarter. The bottom line surpassed the Zacks Consensus Estimate by 6.5%. Strong revenue and higher gross margins were primary growth drivers.
Total revenues were $357 million, up from $315.6 million in the year-ago quarter and beat the Zacks Consensus Estimate by 3.1%. This uptick was driven by higher revenues across both the business segments.
For fiscal 2025, the company expects Dolby Atmos and Dolby Vision along with imaging patents to grow around 15%. Revenues from foundational audio technology to be roughly flat on a year-over-year basis.
Revenues from Licensing were $330.5 million, up 12% year over year. Dolby highlighted that the segmental revenues included a $70 million favorable true-up related to the fiscal fourth quarter shipments that were above the original estimate. The true-up was witnessed across all end markets but was most prominent in auto and broadcast verticals.
Products and Services’ revenues were up 22% year over year to $26.5 million.
Our estimates were pegged at $319.5 million and $26.7 million for the Licensing, and Products and Services revenues, respectively.
Broadcast Licensing contributed 35% to total licensing revenues in the quarter under review. Mobile Licensing, Consumer Electronics, PC Licensing and Licensing from Other Markets accounted for 19%, 15%, 9%, and 22% of licensing revenues, respectively.
For fiscal 2025, management continues to expect Consumer Electronics to be down mid-single digits, while it expects growth in mobile and other markets. Broadcast and PC are expected to witness flattish sales.
Gross profit in the fiscal first quarter was $316.2 million compared with $283.5 million in the year-ago quarter. Total operating expenses increased to $236.4 million from $217.3 million reported in the year-ago quarter.
Operating income was $79.9 million compared with $66.2 million in the year-ago quarter.
For the fiscal quarter that ended on Dec. 27, Dolby generated $107 million of net cash from operating activities
As of Dec. 27, 2024, the company had $520.8 million in cash and cash equivalents, with $641.6 million in total liabilities. It had $482 million in cash and cash equivalents, with $623 million in total liabilities, as of Sept. 27, 2024.
The company repurchased 186,000 shares of its common shares for $15 million and ended the quarter with $387 million of stock left under repurchase authorization.
For the second quarter of fiscal 2025, the company estimates revenues between $355 million and $385 million. It expects GAAP EPS of 77-92 cents and non-GAAP EPS between $1.19 and $1.34.
On a GAAP basis, operating expenses are expected to be in the range of $230-$240 million, whereas, on a non-GAAP basis, the same is anticipated to be between $190 million and $200 million.
For fiscal 2025, the company expects revenues to be in the $1.33-$1.39 billion band. GAAP operating margin is expected to be 20%, while the non-GAAP operating margin is expected to be nearly 33%. Licensing revenues are forecasted to be in the range of $1.22 billion to $1.28 billion.
On a GAAP basis, operating expenses are expected to be between $915 million and $925 million, whereas, on a non-GAAP basis, the same is anticipated to be in the range of $765-$775 million. The company expects GAAP EPS of $2.39-$2.54 and non-GAAP EPS of $3.99-$4.14.
It turns out, estimates review have trended downward during the past month.
The consensus estimate has shifted -8.18% due to these changes.
Currently, Dolby Laboratories has a subpar Growth Score of D, however its Momentum Score is doing a bit better with a C. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Dolby Laboratories has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.
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