Bang & Olufsen share price down, issues profit warning on rollout delays

Denmarks high-quality consumer electronics manufacturer Bang & Olufsen A/S projected lower full-year 2014/2015 earnings due to supply-chain issues.

B&O said that ramp-up issues in its production had higher-than-expected negative impact on new product releases, costs and profit margins. It now expects an operating loss for the full-year, compared to its previous guidance of positive earnings before interest and tax.

The company also restated its forecast of a single digit growth for the 2014/15 financial year. Earnings before interest and tax in the second half of the fiscal year are expected to be positive, with free cash flow ranging between DKK 50 million to DKK 100 million. However, it wont be sufficient to offset the weaker first-half results, B&O said.

B&O said customer demand for its latest products remained strong during the second quarter, especially for its $8 000 BeoVision Avant TV. The company, which also makes car stereos, said that automotive sales rebounded after a “challenging” first fiscal quarter.

B&O, which lost nearly 40% of its value in the past three months, is also facing severe competition amid sluggish growth in Europe, the companys core market.

To better cope with trading conditions, CEO Tue Mantoni, who joined the luxury-goods manufacturer in 2011, introduced B&O PLAY. The brand, which includes headphones and portable speakers, is aimed to compete at the lower-priced electronics market, with some distribution through third-party re-sellers.

B&O PLAY has confirmed “the growth opportunity for this business,” the company said, during the second quarter sales through third-party channels increased by 36% and accounted for 42% of the total B&O PLAY sales.

However, B&O projected a 8% decline in group revenue for the second quarter, which combined with lower margins and higher costs is expected to result in a quarterly loss before interest and tax of between DKK 90 million to DKK 100 million compared to DKK 31 million last year.

The company also said that its board and management “will initiate a review to identify strategic and structural options to increase scale and further reduce complexity”. B&O is set to release final Q2 results on January 20.

Bang & Olufsen A/S lost 0.97% on Friday and closed at DKK 41.00 in Copenhagen. On Monday the stock dropped an additional 7.56% to trade at DKK 37.80, marking a one-year decrease of 13.90%. The company is valued at DKK 1.77 billion. According to the Financial Times, the 3 analysts offering 12 month price targets for Bang & Olufsen have a median target of DKK 45.00, with a high estimate of DKK 80.00 and a low estimate of DKK 42.00. The median estimate represents a 9.76% increase from the last close price of DKK 41.00.