UEI Stock Jumps as Company Highlights Higher-Margin Remotes, Nevo Butler Platform
Universal Electronics, Inc. shares bounced 15.2% Friday to close at $51.80 after the company’s Thursday Q4 earnings report showing 68 percent growth in earnings per share. For full-year 2019, net sales grew to $751.7 million, the highest in company history, up 11% over 2018, said Chief Financial Officer Bryan Hackworth on an earnings call. A rebalancing of the remote control maker’s product line away from low-margin devices to advanced, differentiated high-margin solutions contributed to the company’s strongest year ever, said CEO Paul Arling.
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Q4 revenue of $174.7 million compared with $170.3 million in the 2018 quarter. Slower top-line growth reflects a “shift away from low margin business, a tradeoff we would gladly take and sets the company up for additional margin expansion,” Dougherty & Co. analyst Steven Frankel wrote investors Friday, issuing a “buy” rating on the stock.
Q2 guidance of $170 million-$180 million, vs. $184.2 million in Q1 2019, doesn’t reflect the impact of the coronavirus on component supply and production. The extent of the impact on labor, component suppliers and shipping lanes isn’t clear, Hackworth said, estimating up to $10 million of sales could be pushed to Q2 as a result.
UEI’s three China factories have resumed operations after the extended Lunar New Year holiday, but with a reduced labor force, said Hackworth. There are no known cases of the virus among UEI workers, and the company expects to be fully online “within weeks.” UEI’s component suppliers are also coming back online, but with similar labor and logistics issues. The company is acting to secure cargo capacity to be able to ship product “predictably” and at a “reasonable rate” as soon as production and transportation activity returns to normal, said Hackworth.
In Q&A, Arling said 95% of UEI vendors have reported they're up and running. Two factories located in rural locations use a primarily local workforce. One in Shenzhen, with a higher level of migrants coming from other regions, could face slowdowns due to travel interruptions, he said.
China is important for manufacturing, but UEI sells “very little” into the China market, said Hackworth. Impact from the virus will depend on how quickly the company can ship to customers in Japan and Korea, he said. UEI doesn’t expect delays in supplying North American customers because it believes it has adequate components and “safety stock,” and its Mexico production facility is at full capacity.
Arling reviewed the company’s CES 2020 introductions including the fifth generation of its QuickSet Cloud platform that enables CE devices to discover and control devices and services in the home. QuickSet Cloud is now active in many new and emerging set-top boxes, he said, and is embedded in three of the top four TV OEMs' products. QuickSet will be part of several smart speaker and hybrid voice-enabled set-top boxes launching this year, he said.
Samsung’s Galaxy Home Mini, currently available exclusively as a freebie offer for Samsung S20 smartphone buyers, is QuickSet-enabled for control of smart devices in the home, along with legacy remote-controlled products via the speaker’s built-in IR port, Arling noted.
Responding to a question on Nevo Butler, UEI’s digital assistant, Arling said the technology can be built into customers’ devices; they don’t have to buy the Nevo Butler hub from UEI. He described Butler as a collection of UEI technologies that includes QuickSet Cloud and Nevo.ai interoperability as a service. Butler is available as a product for anyone who wants to sell it that way, but it also is a demonstration vehicle for UEI customers, many of whom want to build the elements of Butler into their own products, Arling said. UEI is currently designing Butler technologies into customers’ products, he said, citing TVs and set-top boxes, some of which will be in market this year.
Comcast, UEI’s only customer with more than 10 percent of billings, generated 16.3% of UEI's Q4 revenue, said Hackworth.
UEI's hit from Section 301 tariffs imposed by the Trump administration on electronics imported from China narrowed in 2019 to $530,000 vs. $1.5 million in 2018. The company moved some production from China to its Monterrey, Mexico, facility last year to curb exposure to tariffs for goods sold in the U.S. (see 1902060055).