Harman International Industries' CEO Discusses F2Q 2012 Results - Earnings Call Transcript

Harman International Industries, Inc. (

HAR

)

F2Q 2012 Earnings Call

February 7, 2012 11:00 am ET

Executives

Dinesh C. Paliwal – Chairman, President and Chief Executive Officer

Herbert K. Parker – Chief Financial Officer

Analysts

Christopher J. Ceraso – Credit Suisse

Joseph Vruwink – Robert W. Baird & Co., Inc.

Adam Brooks – Sidoti & Company

David Leiker – Robert W. Baird & Co., Inc.

Presentation

Operator

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Ladies and gentlemen, thank you for standing by. Welcome to the Harman’s Fiscal 2012 Second Quarter Earnings Call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. (Operator Instructions) As a reminder, this conference is being recorded Tuesday, February 7, 2012.

I’d now like to turn the conference over to Dinesh Paliwal, Chairman, President and CEO for Harman International. Please go ahead.

Dinesh C. Paliwal

Good morning, ladies and gentlemen, and I thank you for joining the Harman’s second quarter fiscal year 2012 investor and analyst call. I’m joined in Stamford today by our Chief Financial Officer, Herbert Parker; and our Vice President, Investor Relations, Robert Lardon.

In our earnings release published this morning, we shared with you positive financial results, marking a ninth consecutive quarter of year-over-year improvement to the top and bottom line.

Company wise, we continue to make excellent progress. Our sales increased 18% and our operating income is up 41%. All of our divisions posted higher sales and operating margins, spread by continued higher demand from our automakers, new consumer products, launches and new markets for our professional equipment.

We continue to deliver results in key emerging markets with BRIC country sales increasing by 32%, led by China sales growth of 44%. We are well on our way to meeting the aggressive sales targets. We have set for this sizable BRIC market. We are making further inroads with global and domestic automakers and winning audio contracts for major development and infrastructure projects in BRIC markets.

We told you, we would continue to improve the profitability of our Infotainment division. Well, our Infotainment division sales in the quarter grew by 20% and our operating margin improved to 8.3%. Higher sales were driven by robust demand in the luxury automotive segment and continued strong growth in the BRIC countries led by 35% growth in China. Rapid adoption of the scalable platform is certainly helping us accelerate our margin and reduce our overall cost.

We are also pleased to report that our Lifestyle division sales increased 20% and our operating margin improved to 12.6%. While the world markets continue to manage the effects of the debt crisis in Europe, we continue to gain momentum by executing on our global strategy.

We are investing in our future with the development of connected technologies for the car, the home and on the go. Since, we are first and foremost a technology company, we have cultivated a portfolio of over 4,000 patents and patent spending. Our innovation pipeline has never been more robust.

And at this point, I’d just take a pause to also tell you that today I’m very happy to sit across my colleague Dr. I. P. Park, who had joined the company as our new Chief Technology Officer, and Dr. Park joined us from Samsung Electronics. He had to his credit few dozens of patents, and terrific knowledge of connected space. And he will take over from Sachin Lawande and take us to the next level of innovation.

So coming back to, at CES in Las Vegas, NAM in California, the Detroit Auto Show and the Delhi Auto Show in India, we showcased our latest products and technologies and took home industry awards for innovation, performance and design. These continued investments in innovation positioned us for sustainable profitable growth.

When you have great technology and brands like we have, you got to promote them. We’re investing in our world-class brands with new global campaign for key brands like JBL and Harman Kardon.

To be clear, we launched these to accelerate penetration of our audio systems in the car, at home and on the go, and this strategy is beginning to pay dividends. While we invest in our brands, we remain relentless on our cost and focus. By doing so, we have secured the financial flexibility we need to execute against a number of strategic capital allocation options.

Ladies and gentlemen, we continue to earn your trust and other stakeholders by delivering sound financial returns by investing and bringing new innovation to market and by gaining share from our competitors.

Our hard work to optimize our global footprint has lacked to a sustainable lower cost base. And when you combine with global supply chain management, we have done, it has allowed us to deliver nine consecutive quarters of year-over-year improvement in sales and earnings. With our current production footprint in emerging markets, we have the flexibility and a scalability to meet our future growth targets, while maximizing our return on invested capital.

Our performance this quarter speaks for itself. Harman sales and profitability have improved for nine straight quarters and we reported record sales in this quarter ever. Year-to-date, EBITDA is at 10.6%, up from 9.5% last year. Our balance sheet is strong and our liquidity stands at $1.3 billion. Our Infotainment and car audio backlog of awarded business remains the envy of our industry at over $14 billion.

Now comes the interesting part. More than half of this backlog, more than 50% of this $14 billion backlog is now carrying double-digit operating margin, double-digit operating margin and that is really what I wanted to register. That tells you what to expect from Harman in coming years.

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