Dolby's Q3 Earnings Beat Estimates on Lower Operating Expenses

In the past year, shares have lost 24.5% compared with the Zacks Audio Video Production industry’s decline of 5.1%.

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DLB's Licensing Mix Shows Uneven End Markets

Licensing revenues declined 2.6% year over year to $282.35 million. Broadcast fell 4.2% to $106.58 million, mobile declined 9.4% to $51.01 million and PC decreased 15.6% to $28.34 million. Timing of minimum volume commitments and lower recoveries weighed on these areas.

Consumer electronics increased 12.2% to $31.51 million, primarily on recoveries, while other licensing revenue rose 7.0% to $64.91 million. Dolby Cinema and Atmos adoption in automobiles supported licensing revenue, partly offset by lower gaming-console unit shipments and imaging-patent revenue. Products and services revenue fell 11.7% to $22.64 million because cinema-product sales declined.

Dolby Builds Momentum Beyond Device Licensing

Meta joined the video distribution program covering Facebook, Instagram and WhatsApp, while Alibaba signed for video operations spanning e-commerce, entertainment and digital media. The patent pool had 45 licensors after roughly a year, and management said the growing roster is helping advance discussions with other large streamers.

Dolby OptiView secured a multiyear agreement with Roberts Communications Network for ultra-low-latency horse-racing streams. Google certified OptiView Ads for its Ad Manager partner program. Dolby also announced partnerships with more than 40 carmakers, up from over 20 at fiscal 2025-end. Android Auto added Atmos support with partners including BMW, Genesis, Mahindra, Mercedes, Renault and Skoda.

DLB's Costs Weigh on GAAP Operating Profit

GAAP gross profit declined 2.5% to $264.68 million, but gross margin rose to 86.8% from 86.0% as cost of revenue fell faster than sales. Products and services gross margin improved to 22% from 13%. Within services, lower Dolby Cinema warranty and maintenance costs supported margin performance.

GAAP operating expenses increased 2.9% to $230.36 million. General and administrative expenses rose 4.5% to $75.59 million, mainly on litigation and patent-pool program costs, while a $3.96 million restructuring charge compared with a $0.55 million credit a year ago. Operating income fell 28% to $34.32 million, and the effective tax rate increased to 33.3% from 16.2%.

Dolby Guides for a Strong Fiscal Fourth Quarter

For the fourth quarter of fiscal 2026, Dolby expects revenues of $362-$392 million, licensing revenues of $335-$365 million and non-GAAP earnings of $1.13-$1.28 per share. Non-GAAP gross margin is forecast at about 90%, with operating expenses of $195-$205 million.

The revenue-guidance midpoint implies 23% year-over-year growth. Management expects support from the video distribution program, including the Meta deal signed early in the fiscal fourth quarter, higher Dolby Atmos units in automobiles, new device categories such as wearables and the timing of minimum volume commitments.

DLB's Full-Year Outlook Targets Margin Expansion

For fiscal 2026, DLB projects revenues of $1.41-$1.44 billion, licensing revenues of $1.31-$1.34 billion and non-GAAP earnings of $4.25-$4.40 per share. Non-GAAP operating margin is expected near 34%, representing roughly 100 basis points of year-over-year improvement.

Management expects other licensing revenue to rise in the high teens, driven by automobiles and the video distribution program. Broadcast and mobile are forecast to grow in the mid-single digits, consumer electronics should be roughly flat and PC is expected to decline in the low single digits. Dolby Atmos, Dolby Vision and imaging-patent revenues are projected to grow about 15%.

Dolby Returns Capital as Liquidity Stays Solid

The company generated approximately $167 million in quarterly operating cash flow and ended the period with $756 million in cash and investments. Dolby said its liquidity sources should be sufficient to meet anticipated cash requirements for at least the next 12 months.

Dolby repurchased 1.2 million shares for about $65 million and increased its buyback authorization by $350 million, leaving approximately $427 million available. It also declared a 36-cent dividend, up 9% year over year.

DLB’s Zacks Rank

Dolby currently has a Zacks Rank #4 (Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Recent Performance of Other Companies

Sonos, Inc. SONO reported third-quarter fiscal 2026 non-GAAP earnings of 27 cents per share, which soared 52% year over year and topped the Zacks Consensus Estimate of 24 cents. The 12.5% surprise reflected higher sales and disciplined spending despite rising memory costs.

Revenues increased 9% to $375 million, beating the $367 million consensus by 2.3%. Speaker demand and international expansion supported growth. Sonos’ installed base exceeded 53 million connected devices across more than 17 million homes.

America Movil, S.A.B. de C.V. AMX reported net income per ADR of 47 cents for the second quarter of 2026, up from 38 cents in the prior-year quarter. The earnings figure missed the Zacks Consensus Estimate of 52 cents. Total quarterly revenues rose 3.1% to Mex$241,071 million, driven by rapid momentum across the Service and Equipment segments.

BlackBerry Limited BB reported first-quarter fiscal 2027 non-GAAP earnings per share of 4 cents. The figure beat the company’s estimate of 2-3 cents. In the year-ago quarter, it reported a non-GAAP EPS of 2 cents. The Zacks Consensus Estimate was pegged at 3 cents per share. BlackBerry generated $152.9 million in fiscal first-quarter revenue, representing 26% year-over-year growth.

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