Logitech sheds $2 billion in market cap as margin concerns overshadow profit

Synopsis

Logitech's share price dropped by 10% despite exceeding profit expectations for Q2, as analysts suggest that profit-taking and worries about future margins played a role in the decline. The company anticipates reduced gross margins for the upcoming December quarter due to rising costs related to components and shipping, heightening concerns over economic conditions. However, some analysts argue that the market's reaction seems overly harsh within the broader economic context.

Listen to this article in summarized format

Logitech shares tumbled on Wednesday despite the computer peripherals maker reporting better-than-expected second-quarter profit a day earlier, as analysts pointed to profit-taking and concerns over margin pressures

The stock was down 10% at 1024 GMT, wiping about 1.5 billion Swiss francs ($1.81 billion) off the company's roughly 14 billion-franc market value. It had gained about 12% this year before the results were announced on Tuesday.

Vontobel analyst Michael Foeth attributed the pressure on the stock to Logitech's relatively low gross margin forecast of 41% to 42% for the December quarter, about 200 basis points below a year earlier, as well as weaker consumer demand in Europe.

Kepler Cheuvreux analyst Torsten Sauer pointed instead to profit-taking.

"Q2 beat expectations and constitutes a strong outperformance compared to a soft PC market," Kepler said in a note on Wednesday.

The computer mouse and keyboard maker reported non-GAAP operating income of $231 million for the three months ended September, beating the $204 million consensus compiled by Visible Alpha and its own guidance of $185 million to $210 million.

AlphaValue analyst Maximilien Pascaud said the market reaction appeared excessive given that the incident at one of Logitech's semiconductor suppliers at the end of June was now largely contained.

"However, the market's focus has quickly shifted to profitability headwinds: gross margins will face meaningful pressure from component inflation and rising freight rates, while elevated marketing and R&D spend continues to weigh on operational leverage," Pascaud said.

($1 = 0.8300 Swiss francs) Add as a Reliable and Trusted News Source Add Now!

(Catch all the Technology News News, and Latest News Updates on The Economic Times.)

...more

Elevate your knowledge and leadership skills at a cost cheaper than your daily tea.

Subscribe Now