Logitech Imposing 'Selective' US Price Increases to Offset Hike in List 3 Tariffs to 25%
Logitech management on a fiscal Q1 earnings call Tuesday credited the company's operations team for successfully mitigating the Section 301 tariffs on Chinese imports. But Logitech also said it has warned its U.S. supply chain of “selective" price increases to offset the higher costs of the List 3 tariffs hike to 25 percent from 10 percent that took effect May 10 (see 1905060015)
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“The tariff increases hit in the middle of the quarter, so we’ll have some additional tariff cost increases next quarter that we’re taking steps to mitigate,” said Nate Olmstead, announced as Chief Financial Officer Tuesday after serving in that position on an interim basis since May (see 1904300179). Steps include diversifying manufacturing locations, Olmstead said, and “pulling in some inventory ahead of the tariff increases” to get a “one-time benefit.”
CEO Bracken Darrell cited manufacturing operations in Malaysia, Vietnam and Thailand, saying it has more Asian manufacturing now than in the history of the company. He was careful not to “exaggerate” the diversification outside of China, saying Logitech’s China factory is “still quite busy” and “super-efficient.” Only products destined for the U.S. are affected by tariffs, “so we have a lot of manufacturing still happening in China, we will have a lot of manufacturing happening in China," said Darrell. "We love that factory.”
Costs to move production to new locations were “relatively low,” Darrell said: “We’re used to doing this. There aren’t usually huge tooling costs” that would affect fixed asset investments or gross margin, he said.
Commenting in Q&A on reports of a slowdown in the China market, Darrell noted Logitech has seen annual growth between 19-23 percent over the past few years but “I don’t expect it to stay like that, and we didn’t see that this or last quarter; it was lower.” Nothing in Logitech’s portfolio “suggests China is in for a big slowdown,” he said, calling the business “stable," while warning it won't see the 20 percent growth of previous years.
Revenues in the quarter were up 9 percent to $644.2 million, said the company. Some categories performed better and others worse, said Darrell, crediting the company’s diversified portfolio for positive overall results.
Gaming peripherals generated the highest revenues at $135 million, but were down a point due to a difficult comparative from the year-ago quarter on a spike in headset sales driven by Fortnight, Darrell said. Mouse sales fell 5 percent to $122 million, keyboards and combos were flat at $129 million and PC webcams fell 5 percent to $28 million, the company said.
Logitech saw strong growth in video collaboration in the quarter, up 25 percent to $73 million, while tablet and other accessories grew 18 percent to $38 million and audio and wearables grew 12 percent to $59 million “on the back of podcast creation,” said Darrell. The mobile speakers business, led by Wonderboom 2 and Outdoor Boost, jumped 47 percent to $50 million, despite overall category softness, said the executive, attributing growth to timing of product introductions. The smart home business grew 9 percent to $9.9 million.
On its PC peripherals business, Darrell said the category bounces from slightly negative to positive but is “consistent and stable,” and the company expects it to drive low single-digit growth for the foreseeable future. He downplayed a recent upswing in PC sales as significant for Logitech saying the company no longer attaches its PC business to PC shipments.
Shipments and Logitech peripheral add-ons “used to be more highly correlated,” but the installed base of PCs is much larger than PC shipments. The company is no longer aggressively seeking upgrade attachment sales because of the falloff in shipments, which is “a much smaller story now.” New production introductions are the category driver, Darrell said, and quarterly results track with launch timing. He hinted at new product innovations in coming quarters.
Shares closed 3.1 percent higher Tuesday at $41.04.