Voxx Electronics Sales Grew More Than 23 Percent in Q2

Electronics sales grew 23.3 percent from Q2 last year to $156.3 million, said Voxx. The growth was driven mainly by the addition of Hirschmann products, which accounted for $39.6 million in Q2, it said. Voxx bought Hirschmann March 14. Excluding Hirschmann, Q2 electronics sales fell about $10 million, with the declines “primarily in consumer products, mobile audio and in the international markets,” it said. Offsetting the decline were increases in mobile OEM sales thanks to the launch of new programs with two OEM customers and new mobile products, it said. Electronics sales represented 81.5 percent of total Voxx Q2 sales, up from 80.1 percent in Q2 last year, it said.

Domestic Klipsch sales grew 18 percent in Q2, “driven by headphones, sound bars and our new 5.1 surround systems,” said Lavelle. The company’s headphone business “continues to gain market share and we have the number one selling in-ear headphone” at Apple Stores and “strong placement at other leading retailers,” he said. The company will also ship a new line of in-ear headphones in time for the holiday season, he said. “Another significant development is the placement” of Voxx’s Jamo brand high-end speakers and sound systems at Best Buy’s Magnolia Home Theater locations, he said. “This marks the first national exposure” for the Jamo brand in the U.S., he said.

U.S. mobile OEM sales grew about 9 percent in Q2 and Voxx expects that growth will “continue throughout the year,” said Lavelle. The company recently launched programs with Ford and Nissan, and “we will see the impact of those programs in the months ahead,” he said. Voxx’s aftermarket business was “down slightly, but I expect improvements as we introduce” new location-based service products in Q3, he said.

Accessory sales grew 12 percent to $35.4 million, driven by stronger sales of wireless speakers, digital antennas and portable power line products, as well as increases in sales of accessories products outside the U.S., said Voxx. Accessories represented 18.5 percent of total Q2 Voxx sales, down from 20 percent in Q2 last year. Domestic accessory sales grew 22 percent, said Lavelle.

Q2 was the “fourth straight quarter” of Voxx accessory sales growth, said Lavelle. The company is meeting its accessory projections and expects that “will continue throughout the year,” he said. Much of the Q2 accessory growth came from new products introduced this year, he said. Two “significant developments” were its placement of Acoustic Research wireless speakers at Home Depot and placement of its Personal Sound Amp at 1,200 CVS stores, he said. The company also landed the Bauhaus retail account for Schwaiger in Germany, he said.

Total Q2 Voxx revenue grew 21.1 percent to $191.7 million. Profit grew to $3.7 million, or 16 cents a share, from $3.4 million, or 15 cents. Gross margin was 28.5 percent, up from 27.7 percent in Q2 last year, with the growth driven by a change in product mix, said Voxx.

Voxx’s domestic operations “are performing well” and it has a strong product lineup for the back half of the year, said Lavelle. Therefore, its domestic business “should continue to meet plan despite the fact that we have exited some of the lower-margin product lines,” he said. But it’s “challenged in the international markets, primarily the eurozone countries,” he said. “All of our European operations felt the impact of the recession in Europe,” he said. A China “slowdown,” meanwhile, mainly impacted its Hirschmann business, he said. Hirschmann sales totaled nearly $40 million in Q2, “below budget,” due to “lower-than-expected take rates of mobile TV tuners, primarily in China,” he said. There were Audiovox Germany, Schwaiger and Oehlbach sales declines in Q2 “due to economic conditions,” but Schwaiger is up year-to-date thanks to its “strong market position in set-top boxes as the digital changeover in Europe winds down,” he said. Venezuela and Mexico sales were up, he said.

"No one can say what will happen over the coming months,” said Lavelle. But the euro “has bounced back off this year’s lows and indicators are that Germany will return to growth next year and that China’s issues are short-term,” he said. “We're not in a robust economy either” in the U.S., but its business and margins “are holding,” and it’s “gaining business in new product lines and new partners continue to expand our retail presence,” he said.

Voxx previously estimated it will report $900 million in sales and EBITDA of $54 million to $57 million for this fiscal year. The company “will not hit those numbers for the year due to our current outlook for our European operations,” Lavelle said Thursday. It now expects sales “in the $850 million range” and EBITDA of $48.9 million, but still expects to report 28 percent gross margin for the year, he said. Its “goal over the next few years remains to improve margins to 30 percent, which we believe is attainable based on projected product mix,” he said. Its market share “remains constant,” he said.

Voxx “jettisoned” more than $7 million in lower-margin product and expects that to increase to about $15 million to $18 million for this year, said Lavelle. That will be “offset” by growth in accessories, he said.

The company will roll out Car Connection location-based products via a partnership with Sprint at Sears and Pep Boys stores later this quarter, said Lavelle. Voxx also started shipping its first Blu-ray player for in-vehicle use last month and recently launched entertainment systems for various Ford and Nissan vehicles, he said.

Voxx has the “best placement we've ever had” for its accessory business, “expanding our presence with big-box retailers, drug stores, hardware stores and lifestyle chains,” said Lavelle. Various programs are set for the holiday season, including new Skinit wireless speakers from Acoustic Research that will launch this quarter at Best Buy, Lowe’s and RadioShack, “covering over 4,000 retail locations,” he said. It also has various promotions for its charging products running at Home Depot, Costco and BJ’s, he said.

The mobile OEM business “holds great potential for our company” in all markets, much of it tied to Hirschmann, said Lavelle. While revenue has been hurt by lower car sales in Europe and weaker take rates in China, Hirschmann “positions Voxx International as the leader in bringing new digital technology to the vehicle,” he said. New Hirschmann tuner technology “has already won us over $160 million in new contracts since we acquired them and we believe this is just the beginning,” he said. The contracts start in 2015 and run through 2021, and it “will generate income starting in the second half of 2013 off these programs,” he said. Also, its Hirschmann “low-cost” manufacturing facility in Hungary “will give us opportunities to shift some of our existing China production, giving us potential vertical profitability and adding more OEM production capability, which will also help expand our existing OEM relationships,” he said.

Voxx will “limit” merger and acquisition “activity for the near-term,” said Lavelle. It will instead focus on Hirschmann integration and upgrade its Enterprise Resource Planning system for all domestic operations in 2013, he said. It’s “on target to complete the upgrade at Voxx International by December and then convert the remaining operations by March,” he said. That should allow it to “begin realizing the efficiencies” in fiscal 2014, he said.

Voxx is also “looking into other consolidation plans” for its manufacturing and distribution facilities globally, said Chief Financial Officer Charles Stoehr. “While we continue to have discussions about potential acquisitions, our focus is on integration, growing our business organically and potential consolidation to generate better efficiencies which will result in lower fixed expenses and increased profitability,” he said.