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VOXX International: The Results Speak for Themselves

January 27, 2013 | About:
VOXX International Corp. (VOXX), formerly known as Audiovox Corporation, was formed over 45 years ago and has since grown into a worldwide leader in many automotive and consumer electronics and accessories categories, as well as premium high-end audio. Through its wholly owned subsidiaries, VOXX is recognized as the number one ranked premium loudspeaker company in the world, and has leading market positions in automotive video entertainment and remote starts, digital TV tuners and digital antennas. VOXX is also ranked first in terms of market share for TV remote controls and reception product. VOXX sells its products through an extensive distribution network that includes power retailers, mass merchandisers, 12-volt specialists and leading automotive manufacturers. It has an international footprint in Europe, Asia, Mexico and South America.

Guru and Insider AlertsRichard Snow, founder of Snow Capital, currently holds 48,595 of VOXX's shares and doubled his position in the third quarter of 2012 with an addition of 25,300 shares at an average price of $7.79. Patrick Lavelle, President and CEO bought 1,000 shares in VOXX at $9.19 a piece in January 2013.

Valuation

VOXX currently trades at a trailing twelve months P/E of 9.28 and a trailing twelve months EV/EBITDA of 7.83. VOXX achieved a 5.5% ROE for the past 12 months and a five year average ROE of 0.4%.

VOXX P/E-ROE Comparison

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VOXX has a patchy earnings track record historically with losses in three of the past 10 years. However, it has managed to record both positive net income and positive free cash flow for the most recent three fiscal years. Gross margin has been on a gradual upward trend in the last decade, reaching a new 10 year high of 28.7% in fiscal 2012. VOXX has employed an M&A strategy over the past few years to build its brand portfolio and enhance its product offering in higher margin product categories, and exiting lower margin and commoditized product lines at the same time.

VOXX Earnings-Cash Flow Comparison 1359267209056.png

VOXX Profit Margins Analysis1359267662793.png

Financial and Business RisksVOXX is moderately geared with a debt-to-equity ratio of 45%. Since 2011, VOXX has geared up significantly; prior to fiscal 2012, VOXX's gearing has never exceeded 10%. Interestingly, as indicated in the chart below, investors who bought VOXX in early 2009 when cash and short term investments exceeded market capitalization, would have seen the stock price quadruple in four years.

VOXX Cash-Debt-Market Capitalization Comparison1359267816613.png

VOXX has employed an outsourced manufacturing strategy over the years, enabling it to deliver the latest technological advances without the fixed costs associated with manufacturing. The flipside is that VOXX has acknowledged that there have been occasions that suppliers were unable to produce the quantities of products desired. It imports most of its products from manufacturers principally located in several Pacific Rim countries, including China, Hong Kong, Indonesia, Malaysia, South Korea, Taiwan and Singapore, under short-term purchase orders.

VOXX competes directly with OEMs in the autosound, auto security, mobile video and accessories industry. According to VOXX, OEMs are putting increased sales pressure on new car dealers with whom they have close business relationships to purchase OEM-supplied equipment and accessories.

VOXX faces moderate customer concentration risk, with its five largest customers representing 26% and 30% of fiscal 2012 and 2011 net sales respectively. In addition, Wal-Mart accounted for more than 10% of VOXX's fiscal 2011 and 2010 sales; while Best Buy accounted for more than 10% of VOXX's fiscal 2012 and 2010 sales.

Business Quality and Capital AllocationVOXX is the market leader across its business segments: automotive, premium audio and consumer accessories. VOXX is a leading supplier of automotive electronics products to OEMs, expeditors and 12-volt specialists: it is ranked first in domestic installed rear-seat entertainment; domestic remote start systems; domestic satellite radio aftermarket products; and global automotive digital TV tuners. In addition, it is the third largest supplier of automotive antennas globally and is one of the top mobile multimedia suppliers. VOXX is also the market leader in premium high-end loudspeakers globally and distributes its products through big box retailers & independents, with market leading positions in in domestic surround sound and domestic premium home theater. It is also the second largest supplier of home audio speaker systems in Germany, with a growing international presence in Europe and Asia. In the consumer accessories space, VOXX is the market leader in domestic TV remote controls, domestic TV reception products and domestic wireless outdoor speakers of power products.

VOXX has completed 10 acquisitions since 2005, resulting in a portfolio of over 30 global brands. This allows VOXX to capitalize on its portfolio of brands to increase market penetration, through bringing to market products under brands that consumers already perceive as quality. These brands include Terk, Technuity, Incaar, Oehlbach, Schwaiger, Invision and Klipsch.

VOXX currently has the most expansive distribution network, which includes power retailers, mass merchandisers, distributors, professional and commercial installation channels, car dealers and OEMs. It has further expanded into new distribution channels, such as drug store, hardware and furniture chains recently. The extensive distribution and supply networks that VOXX possesses, enable it to capitalize on niche product and distribution opportunities in its target markets.

VOXX does not pay a dividend.



Conclusion


The results of VOXX's efforts to shift to higher margin products through M&A have been impressive with gross margin hitting a new ten year high of 28.7% in fiscal 2012. However, the sharp share price run-up since the start of the year and increasing leverage will keep value investors at bay now.

DisclosureThe author does not have a position in any of the stocks mentioned.

About the author:

Mark Lin
Mark is a private value investor and runs the Cheapskate Investing website which borrows from the wisdom of value investing giants, using a systematic quantitative screening approach to filter the global stock markets for cheap cigar-butts and wide-moat compounders. He is also a regular contributor to various value investing communities.

Visit Mark Lin's Website


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