Does Logitech earnings signal the end of tech normalization?

Computer peripherals and accessories manufacturer Logitech International SA  NASDAQ: LOGI stock has had a tumultuous ride in 2023. Shareholders were surprised when its decade-long CEO, Bracken Darrel, abruptly resigned on June 13, 2023. He left no explanation in the middle of a turnaround situation. This caused shareholders to brace themselves for potential bad news, especially since its CFO resigned within six months of the unexplained CEO departure. The COO was also replaced in 2023.

CEO searching

Board member Guy Gecht, member of the audit committee and chair of the Technology and Innovation committee, took over as interim CEO. Darrel did stick around for a month as the company commenced an intense, permanent CEO search. Five months later, shares of Logitech would hit 52-week highs and signal the end of the post-COVID technology normalization. Peripherals and gaming accessories are a highly competitive category in the computer and technology sector with giant competitors, including Microsoft Co. NASDAQ: MSFT, Dell Technologies Inc. (NASDAQ:  DELL), and HP Inc. NYSE: HPQ.

The roaring 2021s

The pandemic reopening was an unprecedented period of growth for Logitech and its peers as robust pent-up demand fueled by supply chain disruptions caused consumers to spend like drunken sailors through 2021. Unfortunately, the hangover came in the form of normalization as reality set back, sending most technology stocks lower for the next two years. Revenues fell back to earth and swelled-up inventories caused demand to take a cliff dive. Video gaming fell as fast and hard as it ramped up during lockdowns as people returned to school and work. Logitech experienced six straight quarters of double-digit YoY revenue declines due to tough comps in 2020 through 2021. However, this normalization period may have finally concluded, as evidenced by Logitech's latest earnings report.

Reversal of fortunes

On October 24, 2023, Logitech released its fiscals Q2 2024 earnings report for the quarter ended September 2023. The company reported EPS of $1.09, crushing the 60-cent consensus analyst estimates by 49 cents. GAAP operating income rose 23% to $157 million. Non-GAAP operating income rose 17% to $183 million. Operating expenses fell by 9% YoY, in line with declining sales. Revenues slipped 8% YoY to $1.06 billion, still beating analyst estimates for $972.9 million. Cash flow from operations rose to $223 million, up $150 million from the year-ago period. The company ended the quarter with $1.16 billion in cash.

Raising forecasts

Logitech raised its fiscal full-year 2024 revenues to $4 billion to $4.15 billion, from its previous estimate of $3.8 billion to $4 billion. Its YoY sales decline has improved from 12% to 9% from its earlier outlook of 16% to 12%. Non-GAAP operating income is expected to be between $525 million to $575 million compared to the previous outlook of $400 million to $500 million. Non-GAAP YoY operating income decline improved from 11% to 2%, down from the previous forecast of 32% to 15%.

Normalization abruptly ending

Gross margins expanded to 42% (up from 38.6%) and operating margins to 17.3%. The strong education sector drove tablet accessory growth by 15% YoY and pointing devices by 3%. Gaming continued to decline 12% YoY, driven by PC Gaming and Simulation, but revenues rose sequentially. Video Collaboration fell 15% YoY but grew sequentially. Webcams fell 14% YoY but grew sequentially. PC sales appear to be picking up steam again. The sequential growth indicates an abrupt improvement in demand and a potential conclusion of inventory normalization. Check out the sector heatmap on MarketBeat.

Interim CEO Insights

Interim CEO Guy Gecht noted that the company had released 16 new products in the quarter. The company has returned to growth and exceeded its pre-pandemic profit levels. He noted that artificial intelligence (AI) is a major strategic opportunity. Its new Zone Wireless 2 headsets use AI for far-end noise suppression, resulting in a "unique two-way noise-free cancellation experience."

Gecht commented, "Looking longer-term, I'm confident about Logitech's positioning. Our portfolio aligns with doable secular trends in hybrid work, video conferencing, gaming and content creation that will continue playing out, and we see no reason why we will not maintain the number one positioning Logitech currently holds in most of our growth categories."

Permanent CEO appointed

Logitech completed its CEO search. It has appointed former Unilever PLC NYSE: UL group president presiding over its $14 billion nutrition business Hanneke Faber. She will commence as the new permanent CEO of Logitech on December 1, 2023. Logitech board chairperson Wendy Becker commented, "Hanneke is an exceptional business executive with proven leadership experience at a global scale. She has driven growth and transformation across multi-billion dollar businesses at three of the world's leading product companies: Unilever, Ahold Delhaize and Procter & Gamble. "

Logitech analyst ratings and price targets are at MarketBeat. Logitech peers and competitor stocks can be found with the MarketBeat stock screener.

Weekly Cup Pattern Formation

The weekly candlestick chart on LOGI illustrates the cup pattern attempting to complete the lip line at $84.33. The cup commenced in January 2022 after peaking at the $84.33 lip line. Shares fell to a low of $41.12 by October 2022. LOGI staged a rally to form a rounding bottom as it triggered a market structure low (MSL) breakout through $58.78 after the CEO resignation news was absorbed in the shares. LOGI broke out through the weekly 200-period moving average (MA) at $70.82, driven by its robust fiscal Q2 2023 earnings and guidance. The weekly relative strength index (RSI) surged through the overbought 70-band. Pullback supports are $72.80, $65.31, $58.78 weekly MSL trigger and $53.03.