Logitech Conference Call Notes – Securing Components, Supply Chain, Logistics, Buffer Stock – Strong Balance Sheet, Gross Margins, Higher Air Freight, Higher Ocean Freight Rates, Headwinds, Normalisation to Historic Levels

On July 26th Logitech reported results. In the conference call (webcast uploaded to youtube) the following points were interesting:

Supply Chain Bottlenecks, Logistics Nightmares, Component Constraints, General Issues

The analyst from Citi asked about the impact supply chain bottlenecks, logistics, component sourcing and other issues. The answer from Logitech:

"We gained share in most categories, in fact the vast majority of our categories and I do think part of it was just having supply availability, but we've got a great product lineup right now. I mean we've been gaining share. We were gaining share vs pre-pandemic. We were gaining share during the pandemic and we're gaining share as we see the light at the end of the tunnel." 
"With a strong balance sheet we think this is the right time and it's a good opportunity for us to use that to secure components where we can, and it's a tough environment, to build up those buffer stocks [...] we've got we've got good availability now and I think that will be a competitive advantage for us. We'll see how it plays out."

Citi then asked: “is most of the inventory in the warehouse as finished product or is it mostly ICs and components […]?”

Logitech: "It's really a mix, but I think a lot of it's in the distribution centers and it's out regionally ready to be shipped.[...] It's in our distribution centers, some of it is in components as well.

This shows that Logitech has superior management and execution to competitors with regard to sourcing, logistics and product strength. However, there is also the risk, that the sale of the buffer stocks and finished products comes in slower than expected.

Audio source of quotes above

On Gross Margins, Higher Air Freight, Higher Ocean Freight Rates, Headwinds, Normalisation to Historic Levels

UBS asked about gross profit margins. Here’s what management said:

[…] There's several factors on why I think gross margins, as I mentioned in my opening remarks [...] I think they're going to come down from current levels [...]. Whether they're at 39, 40, 41, 42, 43. You know, we'll just have to see, it depends on a lot of things like mix and so forth. But certainly we have some headwinds. [...], we're going to have to increase promotion as the market stabilizes and normalizes back towards more historic levels. [...]. I think over the long term mix trends are favorable with growth and some higher margin categories. […] also have to see how logistics plays out. [...] certainly we spent a lot on air freight last year. I think we'll spend less on air freight this year, but rates continue to be higher than their historic levels. In fact, just recently the ocean rates have been increasing in the spot market 40 to 50% just in a very short period of time. So while ocean is still a lot more attractive than air, those rates have gone up from their historic levels too. So there's some near term things here, we'll have to fight through, I think, over the long term, You know, we've, we've we've given a range that's got some room for margin expansion off of the FY 20 levels you mentioned. […]

Using Python to transcribe Conf Calls, Webcasts

The above audio was uploaded to an S3 Amazon Bucket, then was fed via a Python script to Amazon Transcribe service which resulted in a raw transcript. That raw transcript was then used for the quotes above. By default Amazon Transcribe does not seperate speakers, has difficulty with abbreviations like “ICs” for integrated circuits, which will be transcribed as “ISIS”. What is also striking: How many fillers speakers use, e.g. “you know”, “um”, etc. (which I edited out).

For more on transcription see this article: Link

Questions or feedback?

Feel free to write me at contact@zuberbuehler-associates.ch or add a comment.

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