Harman International Industries Inc. (



F3Q11 Earnings Call

April 28, 2011 11:00 am ET


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

Herbert K. Parker – Chief Financial Officer


Christopher Ceraso – Credit Suisse

Himanshu Patel – JPMorgan

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



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Ladies and gentlemen, thank you for standing by. Welcome to Harman Fiscal 2011 Third 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, the conference is being recorded Thursday, April 28th 2011. I would now like to turn the conference over to Dinesh Paliwal, Chairman, President and Chief Executive Officer of Harman International Industries. Please go ahead, sir.




Good morning, ladies and gentlemen, and thank you for joining the Harman third quarter 2011 Investor and Analyst call. I am joined in Stamford today by our Chief Financial Officer, Herbert Parker and our Vice President of Investor Relations, Robert Lardon.

Before we begin, on behalf of our employees and our Board of Directors, I wanted to again express our deep sadness with the sudden passing of our founder, Dr. Sidney Harman. He will be missed by the Harman International family and by our customers. And his legacy for innovation and quality will live on here at Harman. In his honor, we have established Sidney Harman Vision Scholarship and we will launch a number of limited edition products to commemorate his legacy.

Earlier today in our earnings release, we shared with you the outstanding progress we have made during the quarter. We continued building momentum with six consecutive quarters of year-over-year improvement to both top and bottom line. And we are beginning to reap the rewards of investments we are making in emerging markets. We continue to deliver consistent improvement in sales growth and operating income. Quarterly sales, up 13% and operating income up 93%. Year-to-date operating income is up 105%.

We are growing rapidly in emerging markets and won multiple branded audio orders from Chinese automakers. We extended our Volkswagen Group award to $1.6 billion covering entire world including Asia. With this award our scalable platform, automotive orders, increased to $3.5 billion and our total backlog of awarded business is at solid $13 billion.

We also exceeded our $400 million step change permanent cost savings program and we’ve did that while we still have one more quarter to go in terms of recognizing full benefits. It has also driven a new era of cost consciousness into Harman’s culture and I'm very happy about that.

To meet growing automotive and professional audio demand for our products, we continue to add production capacity where our customers needed, in line with our plan to transform our global footprint. This summer, we will start production at two of our newest and largest facilities in Dandong, China and Queretaro, Mexico. We are well underway to get to our target of 50-50 balance of manufacturing footprint between high cost and best-cost countries by 2012. As we have said before these actions will improve our competitiveness and increase profitability considerably over time. I would also like to address the recent events in Japan.

We were pleased that no Harman employee nor their immediate families were directly affected by the earthquake and tsunami and Harman did not suffer any property damage. However, the widespread slowdown of Japan’s industrial infrastructure has impacted the automotive industry on a global scale. Despite widely reported part shortages across several industries, we managed to keep normal supply to our customers during this quarter even if it meant some additional cost.

We are working diligently with our Japanese part suppliers and continue to monitor the availability and the quality of components from Japan while investigating alternative supplier options in other countries or even reaching out to make parallel arrangement so that we ensure our customers have no disruptions.

Thanks to Harman Supply Management around the world working for round the clock, we believe Harman is well positioned to weather the impact of the supply disruption. Excluding the impact of lower (inaudible) in the up coming quarters as predicted by several sources, at this moment we don’t expect material impact on our business due to Japanese component availability concerns.

With that challenge, largely under control, I believe, we remain focused on executing against our four strategic pillars and are now beginning to see the pay off on our investments particularly in emerging markets. As you may have read we have just announced three automotive audio awards to grow our business in China. We’ve been awarded the Volkswagen Group Asian business that is based on our scalable platform. Our growth in Brazil is outstanding and we have just entered Russia and are setting up our business infrastructure there. So it’s been a pretty controlled yet very decisive move into the emerging markets, first China, then India, then Brazil and now Russia.

For the first time in recent history, we’ve participated in the major auto shows in Detroit and Shanghai and demonstrated our full suite of capabilities for additional – traditional, electric and hybrid vehicles. We are delighted with the high level of interest from our customers for our connected, green edge and safety systems. In particular, Aha Radio connectivity solutions that bring social media sites and a smartphone experience in the car in a safe and secure manner were the talk of media and customers alike.

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