Stamford, Conn. — Harman International was hit hard by the downturn in the car industry and reported a 42 percent drop in sales and increased losses for its fiscal third quarter, ended March 31, but said it will turn itself around.
“We are not waiting for sales to come back to become profitable,” Harman chairman/CEO Dinesh Paliwal told investors as the company announced a 42 percent decline in net sales to $598 million and posted a $64 million net loss in the fiscal third quarter.
For the nine months ending March 31, net sales were off 27 percent to $2.22 billion, and the company posted a $357.5 million net loss compared to a year-ago $76.1 million net profit.
Sales to automakers, which accounted for 68 percent of third-quarter net sales, were off 47 percent to $405 million in the quarter and, for the nine-month period, were down by 29 percent to $1.54 billion.
To bolster the bottom line, Harman has cut 1,889 jobs worldwide since June 2008, with 1,097 of these cuts having occurred in the U.S. Another 174 jobs in Germany will be cut by June to bring total cuts to 2,063, or 20 percent of Harman’s workforce, Paliwal said.
The chairman didn’t mention plans for further head-count reductions but noted that the savings from restructuring programs usually lag restructuring by “six, nine, 12 months.”
In response to a question about the level of sales needed to put Harman’s OEM business back into the black, Paliwal said, “We’re not going to wait for a sales recovery to help our bottom line. We’re determined to drive the costs to the level of these sales.” He later added, “If sales come back, wonderful. If it doesn’t come back, I’m not going to wait for it.”
With that in mind, the company has imposed a hiring freeze and a 30 percent reduction in travel expenses while shortening work weeks in various factories.
The company also renegotiated its revolving credit agreement to extend the maturity of borrowings by 1.5 years to Dec. 31, 2011, but reducing the available amount to $270 million from $300 million.
“We have sufficient liquidity to run our operations,” Paliwal added in response to one analyst’s question about the company’s cash-burn rate.
By division, third-quarter and nine-month sales were down in all three company segments: OEM automotive, consumer electronics, and professional products. Only the professional division posted an operating income during both periods. The automotive and CE divisions posted operating losses in both periods.
In CE, third-quarter net sales were down 36 percent to $72 million, “primarily attributable to poor economic conditions in the U.S. and Europe,” the company said. The division’s operating loss, however, shrank to $7 million from the year-ago $13 million.
For the nine-month period, CE division sales shrank 28 percent to $298 million, and the division swung into the red with a $33 million operating loss compared to a year-ago $1 million operating income.
On a non-GAAP basis, consumer gross margins rose 1.3 percentage points for the third quarter, reflecting the company’s strategy “to focus on differentiated, high value-added products,” the company said. Also on a non-GAAP basis, CE SG&A expenses fell by $7.7 million to $23 million, primarily because of restructuring and favorable foreign-current translations, the company added.
In automotive, third-quarter net sales were down 47 percent to $405 million with an operating loss of $80 million compared to a $5 million profit in the year-ago period. For the nine-month period, sales were off 29 percent to $1.54 billion, and the operating loss hit $380 million compared to a year-ago operating profit of $33 million.
On the professional side, sales were down 26 percent to $112 million in the third quarter while operating profits fell by half to $8 million. For the nine months, sales were off 20 percent to $357 million, and operating income fell 41 percent to $35 million.