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Amphenol's CEO Discusses Q4 2011 Results - Earnings Call Transcript

From an Interconnect margin standpoint, about 1/3 of the reduction from last year relates to higher depreciation expense in the 2011 quarter compared to the 2010 quarter. While depreciation expense as a percentage of sales for the full year 2011 is comparable to 2010, the sequential decline in sales in Q4 2011 resulted in higher relative expense levels in the current quarter.

The remaining reduction in margin reflects the impacts of increases in material input costs versus the prior year, particularly for precious metals and plastic and, to a lesser extent, cost in the quarter relating to workforce reductions of about 3%. These impacts were partially offset by the positive impact of cost reduction actions and price increases.

In the Cable business, margins improved to 13.1%, up from 12.3% last year. The margin improvement relates to higher volume of specialty cable products and lower relative material costs, primarily copper and aluminum. Overall, we're pleased with the company's operating margin performance of 18.5% in the fourth quarter and 19.2% for the full year 2011, excluding onetime items. The achievement of this profitably level in a year were significant inflationary pressures on input costs, coexisted with a volatile and less-than-supportive demand environment in many of our markets, is a hard-fought accomplishment by operating management. In response to that environment, from a headcount perspective for the year, we reduced headcount by about 4%, excluding the impact of acquisitions. We continue to believe that the company's entrepreneurial operating structure and culture of cost control, will allow us to continue to react in a fast and flexible manner and achieve strong profitability.

In addition, as we look forward to 2012, there are some signs from an input cost perspective, that the new year may bring a somewhat more balanced operating environment. In that more normal environment, the management team remains fully committed to margin expansion, as business volumes expand. Accordingly, the company's guidance for 2012 reflects the return of sequential quarterly operating income conversion rates, in line with the company's long-term target of 25%.

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