MTS Systems Corporation F2Q10 (Qtr End 04/03/10) Earnings Call Transcript

MTS Systems Corporation F2Q10 (Qtr End 04/03/10) Earnings Call Transcript
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MTS Systems Corporation (MTSC)

F2Q10 (Qtr End 04/03/10) Earnings Call Transcript

May 7, 2010 10:00 am ET

Executives

Sue Knight – VP and CFO

Laura Hamilton – Chairman and CFO

Analysts

Liam Burke – Janney

Mike Hamilton – RBC

John Franzreb – Sidoti & Company

Presentation

Operator

Compare to:
Previous Statements by MTSC
» MTS Systems Corporation F1Q10 (Qtr End 01/02/10) Earnings Call Transcript
» MTS Systems Corporation F4Q09 (Qtr End 10/03/09) Earnings Call Transcript
» MTS Systems Corp. F3Q09 (Qtr End 6/27/09) Earnings Call Transcript

Good day and welcome to the MTS second quarter earnings conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Ms. Sue knight. Please go ahead.

Sue Knight

Thank you, Trika. Good morning and welcome to MTS systems fiscal 2010 second quarter investor teleconference. Joining our call today is Laura Hamilton, Chairman and Chief Executive Officer. I'd like to remind you that statements made today which are not historical facts could be considered forward looking statements as defined by the Private Securities Litigation Reform Act of 1995. Future results may defer materially from this statement depending upon risk, some of which are beyond's management's control. A list of such risk can be found in the company's latest SEC form 10-Q and 10-K. This company disclaims any obligation for revise forward statements made today in future events. This presentation may also include reference to financial measures which are not calculated in accordance with Generally Accepted Accounting Principles. These measures may be used by management to prepare the operating performance of the company over time they should not be considered in isolation or substitute for GAAP measures.

Laura will now begin her update in our second quarter results.

Laura

Hamilton

Thanks, Sue. Good morning today's call is going to follow our typical format I'll start with key messages. I'll take you through the order summary to provide some idea of what's happening in our market. Sue will walk you through the financial details and turn it back over to me for the long term and short term outlook.

So let's start with our key messages for the second quarter and we have three today. First, we're pleased with the sequential quarter improvements of the second quarter that resulted from both volume leverage and strong cost management. With $10 million in operating margins we were up 65%, on revenue up 6%.

Our effecting key message is that we're participating in the near term improving business conditions and you can see this in the continued positive trend in what we call base order. In our third message is that we believe that we need to maintain a healthy skepticism regarding the long term economic sustainable worldwide whether you're talking about Greece or U.S. unemployment.

Let's shift to orders and provide you some colour on what's happening in our market. From a total company perspective, Q2 orders came in at $93 million. That was within our range of $80 to $110. So as expected. It was down 13% on a sequential basis because there were no large orders in the second quarter. The base was strong or up 6%. Backlog remains stable.

Let's shift to sensors for a moment. Sensors, second quarter orders came in at $21 million, our highest quarterly order in six quarters. On a sequential basis, sensors orders were up 19%, which is pretty impressive and that includes a negative 5 points of currency effect, so without currency it's 24% up.

In total sensors was up about $3.5 million and what's interesting is that $2 million of that was an industrial and $1.5 million was in mobile hydraulics. We like to ask the question and answer, who's buying and the answer is the same as in the first quarter. And industrial side of the business it continues to be broad based global participation.

We've mentioned to you before plastic and rubber worldwide, steel in China and wind power in Europe. Mobile hydraulic is the same we continue to mention construction and materials handling in Europe and the U.S.

So what's driving 20% growth in the quarter? And we think therefore reason and the first is inventory restocking, the second is we think it's because demand is returning from very low levels. When you're at low levels your growth numbers look pretty big. We think the third reason is new customers and new applications for MTS.

And the fourth reason is harder to know for sure, but clearly there are supply availability concerns broadly across the market and it could be prompting some over reaction or over ordering.

Sensors backlog is up $2 million or 14%, which is a little bit unusual and there are three reasons driving this, first and just light quarter bookings, things that were not expected to ship in the quarter. Second, we are seeing a small number of larger or longer term POs being less and the third reason is, we are experiencing supplier delays particularly in electronics and it's manageable. It's something we deal with every week but it does have a slight impact.

In summary for sensors, we're very pleased with second quarter orders and we believe we will understand the affects of inventory replenishment versus end user demand over time and we remain confident about our ability to find new applications.

Let's shift to test, at $72 million in orders for the second quarter, test orders were down 20% on a sequential basis, two points of that attributable to currency effect. Base orders for test was up 3% because, again, there were no large orders in the test business in the second quarter. So, the results were within our expected range for test.

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