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Logitech Unveils a $1 Billion Share Repurchase – Buyback Wednesdays

  • June 28, 2023

Spectrum Brands (SPB), authorized a substantial buyback program, amounting to $1 billion, which represented approximately 33% of its market capitalization at the time of the announcement. This impressive announcement positioned it at the top of our list of largest buyback announcements.

Spectrum Brands Holdings (SPB) was established in 2005 as the successor company to Rayovac Corporation. It operates as a global consumer products and home essentials company, having expanded its product portfolio and global presence through various acquisitions. Although the company faced bankruptcy in 2009, it has been making headlines in recent years.

On September 8, 2021, Spectrum Brands announced a significant reorganization by agreeing to sell its Hardware and Home Improvement business (HHI) to ASSA ABLOY for $4.3 billion in cash. ASSA ABLOY specializes in locks, doors, gates and entrance automation.

The Department of Justice (DOJ) filed a lawsuit on September 15, 2022, seeking to block the HHI sale. This battle with the DOJ was covered extensively by event-driven investors including Chris Demuth Jr. on Andrew Walker’s Yet Another Value Podcast, where Andrew summarized the situation succinctly when he said:

The DOJ opposed this deal. The reason they opposed it was part of the business they were selling was very high end locks, as ABLOY had very high end locks. They were saying that this is going to be a monopoly if you guys combined the 2 high-end locks business. As ABLOY and Spectrum said, “Hey, we’ll, sell the high-end locks business. Don’t worry about it. It’s a kind of small piece of their overall deal.” Entered a deal to sell the high-end locks business to Fortune, and the DOJ, for reasons that are kind of unclear to me, said no.

After reaching a settlement with the DOJ on May 5, 2023, the sale closed on June 20, 2023. SPB is expected to receive approximately $3.6 billion in net proceeds from this sale, which will be utilized to reduce debt, enhance operational performance, and pursue strategic mergers and acquisitions. Additionally, the company aims to return a substantial amount of capital to its stockholders, resulting in this large buyback announcement.

In recent years, SPB has faced challenges, reporting net losses since 2020 and experiencing a contraction in margins. With improved pricing for its products and cost reduction, management is expecting low double-digit growth in adjusted EBITDA. It would be interesting to see how the company’s restructuring efforts will contribute to its future improvement.

This week, we would like to focus on Logitech International (LOGI).

Key Insights:

  • Logitech International is a Swiss multinational manufacturer of computer peripherals and software.
  • One of the big beneficiary of the pandemic, the company has recently lost momentum due to normalization and reduced work-from-home requirements.
  • A challenging macroeconomic environment and decreased IT spending by enterprise clients have had a large impact on Logitech’s bottom line.
  • The news of the sudden resignation of the company’s long-serving CEO brings about added uncertainty. Hiring a new CEO during a period of limited market or end-user demand visibility carries an additional level of risk.

On June 21, 2023, Logitech announced a $1 billion buyback which represents around 11.5% of its market cap at announcement. During the pandemic, the company experienced a boost in its stock price, reaching as high as $136.59 on June 8, 2021. However, with the declining demand for headsets, cameras and ancillary products, Logitech has faced a substantial downturn, leading to a sharp decline in its stock price. The stock currently trades at $57.33.

Management Turnover:

Logitech has experienced several management changes in recent years. In 2019, CFO Vincent Pilette left the company to join Symantec and eventually became the CEO of the renamed Norton LifeLock. The next CFO, Nate Olmstead, lasted a little over three years before deciding to depart suddenly in October 2023.

The most significant and recent C-Suite change at Logitech is the resignation of its CEO Bracken Darrell. Mr. Darrell had served as the CEO of Logitech since 2013, making him the longest-serving CEO in the company’s history. During his tenure, he is credited with transforming Logitech into an award-winning design company and the results were evident in the financial performance of the company even if you exclude the pandemic related boost.

Bracken Darrel announced his resignation from Logitech to pursue a new opportunity. He has been appointed as the President and CEO of troubled apparel company VF Corporation (VFC), which houses a prominent portfolio of lifestyle brands including The North Face, Vans, Supreme and Timberland among others. In light of Mr. Darrell’s departure, Guy Gecht, a board member at Logitech, has been appointed as the interim CEO while the company is in search of a new leader.

Capital Allocation:

Logitech has prioritized allocation of capital to shareholders either through buybacks or dividends.

Logitech-change in shares outstanding

Source: InsideArbitrage

The gradual decline in the shares outstanding graph shows that Logitech has been buying back its shares on a regular basis. Since March 2021, the company has retired about 4.7% of its outstanding shares.

Logitech has also been paying dividends continuously for the last 10 years. It has gradually grown its dividend from $0.23 in September 2013 to $0.97 in September 2022. The five-year growth rate for the dividend is an attractive 9%. The payout ratio of 36% appears low because of the recent pandemic related jump in earnings. The current yield of 1.75% isn’t particularly attractive for income focused investors.

Q4 FY2023 Results:

The tech industry is still facing headwinds, as layoffs continue and companies are navigating a hybrid work environment. Logitech is not seeing a significant increase in demand for products that were in high demand during the pandemic. These conflicting economic signals have created a low visibility environment and hence results for the last quarter and fiscal year 2023 were disappointing.

  • In the quarter, net sales in constant currency experienced a 20% decline, amounting to $960 million. Over the full year, net sales declined by 13%, reaching $4.5 billion.
  • During Q4, gross margins aligned with management’s expectations, decreasing year-over-year to 36.3%. For the entire year, gross margins stood at 38.3%, indicating a decrease of 340 basis points compared to the previous fiscal year (2022).

Logitech-net sales by category

Source: Logitech – Investor Presentation

  • Operating income amounted to $62.4 million in Q4 and $498.5 million for the full year.
  • Cash flow from operations was $217 million in Q4 and $534 million for the full year, exhibiting a significant increase compared to the $100 million in the corresponding prior-year quarter.

Outlook for Fiscal 2024:

With a continued downturn in PC-related hardware, management is not very optimistic about fiscal 2024. They anticipate that the revenue for the first half of fiscal 2024 will range from $1.8 billion to $1.9 billion, representing a decline of approximately 22% to 18% compared to the previous year. Additionally, the projected operating income is expected to be between $160 million and $190 million, indicating a decrease of approximately 47% to 37%. It is possible that Logitech is attempting to be conservative with its forecasts and might beat these numbers.

Growth:

Logitech has witnessed a decline in revenue, experiencing negative growth of approximately 17% over the past year. As the economy gradually returns to normalcy over the next few years, there is potential for Logitech to rebound and return to positive revenue growth.

Logitech-revenue by product category

Source: Logitech – Investor Presentation

Strong Balance Sheet:

Logitech has a healthy balance sheet with $1.15 billion in cash & short-term equivalents at the end of the March 2023 quarter. The company is debt free and has net cash of around $1.08 billion. Free cash generated for the March quarter was $193.6 million. With decent amount of cash in hand, a buyback announcement makes sense.

Logitech-cash balance, cash flow and inventory

Source: Logitech – Investor Presentation

Bottom Line:

Innovation is the key engine of this business and Logitech fired on all cylinders by releasing 52 new products in fiscal year 2023.
Logitech has built a good brand, and while margins are not exceptional, they are decent enough for the industry. In addition, the company generates good cash flows and returns on assets and capital.

Sustained growth is expected in Logitech’s key categories, including Gaming and Video Collaboration, owing to long-term shifts in consumer preferences and demand. Logitech also plans to introduce an extensive lineup of new products across gaming, video collaboration, keyboards, and mice in the upcoming quarters, accompanied by continuous improvements and refinements in global go-to-market capabilities.

I ran a DCF model for Logitech a few weeks ago and came up with an estimated intrinsic value of $47.46. I would prefer to watch this situation from the sidelines and would get interested if the stock pulls back from current levels or the company starts to see positive revenue growth.

Welcome to edition 65 of Buyback Wednesdays, a weekly series that tracks the top stock buyback announcements during the prior week. The companies in the list below are the ones that announced the most significant buybacks as a percentage of their market caps. They are not the largest buybacks in absolute dollar terms. A word of caution. Some of these companies could be low-volume small-cap or micro-cap stocks with a market cap below $2 billion.

Buyback activity slowed down considerably with 10 new buyback announcements last week compared to 15 in the prior week.

Top 5 Stock Buyback Announcements 

1. NRG Energy, Inc. (NRG): $36.59

On June 22, 2023, the Board of Directors of this integrated power company authorized an additional $1.7 billion share repurchase program, equal to around 21% of its market cap at announcement.

Market Cap: $8.42BAvg. Daily Volume (30 days): 6,119,469Revenue (TTM): $31.37B
Net Income Margin (TTM): -5.90%ROE (TTM): -45.62% Net Debt: $12.19B
P/E: N/AForward P/E: 4.73EV/EBITDA (TTM): -21.14

2. Genesco Inc. (GCO): $25.55

 On June 26, 2023, the Board of Directors of this specialty retailer authorized an additional $50 million share repurchase program, equal to around 15.4% of its market cap at announcement.

Market Cap: $320.99MAvg. Daily Volume (30 days):683,505Revenue (TTM): $2.35B
Net Income Margin (TTM): 2.05%ROE (TTM): 8.18% Net Debt: $617.57M
P/E: 6.55Forward P/E: N/AEV/EBITDA (TTM): 8.8

3. Chico’s FAS, Inc. (CHS): $5.41

 On June 23, 2023, the Board of Directors of this women’s products specialty retailer authorized a new $100 million share repurchase program, equal to around 15.2% of its market cap at announcement.

Market Cap: $667.90MAvg. Daily Volume (30 days): 2,767,640Revenue (TTM): $2.14B
Net Income Margin (TTM): 5.34%ROE (TTM): 37.64% Net Debt: $414.87M
P/E: 5.74Forward P/E: N/AEV/EBITDA (TTM): 5.59

4. Logitech International S.A. (LOGI): $57.33

On June 21, 2023, the Board of Directors of this computer peripherals and software manufacturer authorized a new $1 billion share repurchase program of the company’s Class A common stock, representing around 11.5% of its market cap at announcement.

Market Cap: $9.08BAvg. Daily Volume (30 days): 780,362Revenue (TTM): $4.54B
Net Income Margin (TTM): 8.03%ROE (TTM): 15.66% Net Cash: $1.08B
P/E: 24.95Forward P/E: 23.04EV/EBITDA (TTM): 13.32

5. Atossa Therapeutics, Inc. (ATOS): $0.96

On June 27, 2023, the Board of Directors of this clinical-stage biopharmaceutical company approved a new $10 million share repurchase program, equal to around 8.3% of its market cap at announcement.

Market Cap: $120.93MAvg. Daily Volume (30 days): 605,532Revenue (TTM): N/A
Net Income Margin (TTM): N/AROE (TTM): -22.91% Net Cash: $103.87M
P/E: N/AForward P/E: N/AEV/EBITDA (TTM): -0.59

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