Vtech (303) Q4 2016 earnings summary

Executive summary

• FY2016 revenue declined 1.2% to $1,856.5 million; operating profit fell 8.1% to $202.3 million and profit attributable to shareholders fell 8.4% to $181.4 million.

• Weaker North American and European sales, foreign-exchange pressure, product mix, and the Learning Lodge cyberattack weighed on performance; Asia Pacific and other regions grew.

Financial highlights

• Revenue decreased 1.2% to $1,856.5 million; gross profit decreased 4.55% to $583.3 million.

• Operating profit decreased 8.1% to $202.3 million; profit attributable to shareholders decreased 8.4% to $181.4 million.

• Basic EPS decreased 8.5% to $0.722; proposed final dividend was $0.25, taking FY2016 dividends to $0.42 per share.

Outlook and guidance

• FY2017 revenue is expected to increase; profitability is expected to be affected by LeapFrog integration, with a negative contribution during the year.

• Material costs are expected to remain largely stable; labor costs and manufacturing overhead are expected to rise moderately. Automation, process improvement, and product optimization remain cost-offset priorities.

• ELP and combined VTech/LeapFrog platform sales are forecast to grow; telecom performance is expected to improve, while CMS sales are forecast higher.

• Residential phone sales are expected to continue declining, but at a slower pace; European business is expected to stabilize.