Harman cuts outlook, jobs on weak European car audio sales
By Sruthi Ramakrishnan and Neha Alawadhi | February 1, 2013 4:14 AM EST
Audio systems maker Harman International Industries Inc slashed its full-year outlook and said it would cut up to 9 percent of its workforce after second-quarter profit missed Street estimates due to lower sales to European carmakers.
Harman shares plunged 14 percent to $42.49 in morning trade on the New York Stock Exchange.
"We expected European production to be lower, but the accelerated slowdown in the month of December really surprised us," Chief Executive Dinesh Paliwal told Reuters.
Harman, which owns brands such as JBL and Harman Kardon, said it would shed about 500 jobs in high-cost countries. It is also considering the sale or closure of a manufacturing site in Europe, which could cut a further 500 jobs.
"We are reducing 500 permanent jobs in high cost countries in Europe and America," Paliwal said.
The shut-down of the manufacturing plant could take two to three years due to compliance approvals from the European Works Council, "but this decision is made," he added.
The company slashed its per-share earnings forecast for the year to between $2.70 and $2.90 from between $3.67 and $3.92. It also cut its revenue forecast to between $4.18 billion and $4.25 billion for the year ending June from the earlier range of $4.3 billion to $4.6 billion.
Paliwal does not see a "miraculous change" in European car production in the first quarter of calendar year 2013, and expects the second half to be "modestly better".
Sales in Harman's biggest business, known as infotainment, which provides audio systems used by carmakers such as Daimler AG, Ferrari and Volkswagen's luxury division Audi, fell 10 percent to $540 million in the quarter ended December 31.
Sales to German carmakers accounted for 43 percent of Harman's revenue for the year ended June 2012, with the rest of Europe bringing in another 20 percent.
Harman employed 11,366 people as of June 30, 2012, according to a regulatory filing.
Harman said it expected a restructuring charge of about $30-35 million in the second half of fiscal year 2013.
Demand for new cars in Europe fell to a 17-year low in 2012, leaving mass market manufacturers little hope for this year as they try to cut excess capacity and as aggressive discounting dents their margins.
Harman customer Fiat said European car markets would slump for a sixth consecutive year in 2013, while France's PSA Peugeot Citroen is cutting some 10,000 jobs and adding work stoppage days in response to weak demand across Europe.
Morgan Stanley analyst Ravi Shanker said he was encouraged to see Harman take restructuring actions, but was "surprised to see margins fall so much."
During the second quarter, the company earned 59 cents per share excluding one-time items, well below the 86 cents analysts had hoped for. Revenue fell 6 percent to $1.06 billion.
"The second quarter is an aberration beyond our control," Paliwal said.
Harman's net income fell to $47 million, or 68 cents per share, from $59 million, or 82 cents per share, a year earlier.
In November, the company said weakness in Europe will extend through its full year ending June 2013.
(Reporting by Neha Alawadhi in Bangalore; Editing by Sriraj Kalluvila and Sreejiraj Eluvangal)
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