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MTS Systems Corporation F3Q10 (Qtr End 10/03/09) Earnings Call Transcript

MTS Systems Corporation F3Q10 (Qtr End 10/03/09) Earnings Call Transcript

MTS Systems Corporation (MTSC)

F3Q10 (Qtr End 10/03/09) Earnings Call

August 06, 2010 10:00 a.m. ET

TST Recommends

Executives

Sue Knight - VP & CFO

Laura Hamilton - CEO

Analysts

John Franzreb - Sidoti & Company

Liam Burke - Janney Montgomery Scott

Mike Hamilton - RBC

Presentation

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Previous Statements by MTSC
» MTS Systems Corporation F2Q10 (Qtr End 04/03/10) Earnings Call Transcript
» MTS Systems Corporation F1Q10 (Qtr End 01/02/10) Earnings Call Transcript
» MTS Systems Corporation F4Q09 (Qtr End 10/03/09) Earnings Call Transcript

Good day ladies and gentlemen. Welcome to the MTS Third Quarter 2010 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, Kathryn. Good morning and welcome to MTS systems fiscal 2010 third quarter investor teleconference. Joining me on the call today is Laura Hamilton, Chairman and Chief Executive Officer.

I want to begin by reminding you that statements made today which are not a 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 these statement depending upon risks, some of which are beyond management's control. A list of such risks can be found in the company's latest SEC Form 10-Q and 10-K. The company disclaims any obligation to revise forward statements made today based on future events.

This presentation may also include reference to financial measures which are not calculated in accordance with Generally Accepted Accounting Principles or GAAP. These measures may be used by management to compare 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 third quarter results.

Laura Hamilton

Thanks Sue, okay let's start our call here and we have got four topics for today. I am going to start with key messages, where I will also take you through Q3 order summary. We are going to turn it back over to Sue who will do the financial details and then I am going to talk about market trends and the market and financial outlook. We have four key messages for Q3.

Our first message is that we are reached that orders held steady for the quarter at $94 million because this is right in the middle of our 80-110 range that we said is our quarterly order range.

Our second key message is Q3 revenue and profits before the legal settlement charge were low. Centers performance was outstanding but this was clearly overshadowed by our inability to turn the Test backlog were significantly impacted Q3 revenue.

Although it was consistent with our Q2 outlook we are disappointed in the performance but June results are inline with our Q4 expectations. Our third key message is that we did sell the pattern litigation loss through this quarter which resulted in a $6.3 million tax.

As we said this is related to the nanoindentation product line which we de divested in 2006.

It's really important that you know we do not knowingly or intentionally in fringe pattern and we are pleased to be moving forward on this manner. Our last headline is around affirming our previously provided outlook excluding the Q3 charge and we are going to talk more about this at the end of the call.

So, let me go in by orders, remember we do a sequential quarter comparison. Total company orders for Q3 came in at $94 million which as I said is the middle of our expected range and was flat with the second quarter.

This quarter we had one $6 million order in Test and that put based orders at about $88 million which is down to 7%.

We had said that we expected the Q1 and Q2 growth rates to slow but we're pleased that the base orders remain stable around $85 million plus or minus.

We do continue to see larger order opportunity and it will be lumpy. Back to us for the company is about 4% on flat orders which is really due to the slower turning backlog. Let's shift to sensors Q3 orders. At $21.7 million, sensors orders was up 3% from Q2 and 7% excluding currency. Q3 is the highest quarter since Q4 of fiscal year '08. If you step back a minute, our sequential growth in sensors this year was 6% in Q1, 19% in Q2 and 3% in Q3. So it's been very healthy.

Let's look at the industrial market within sensors. In the industrial market Q3 orders were flat and essentially flat in the U.S. and Europe and Asia because the small number does not move the total. But Asia was up for a sixth consecutive quarter. So that's good news.

The mobile hydraulics market, Q3 orders were up 16% and mobile hydraulics just exceeded 15% of the sensors order mix. This quarter the U.S. looked flat, although the U.S. was up significantly from Q1. But we were up nicely in Europe, especially in local currency.

Sensors backlog at $14 million is up 7%. This is a 2X increase over orders growth, which is due primarily to supply challenges. So while we face supply challenges everyday and it makes our daily life more difficult, its still within an acceptable business range.

So the summary for sensors orders, current quarter moderation in industrial feels appropriate considering the pace of the global economy and we're pleased with the mobile hydraulics growth, which is an example of new market and applications, enhancing our growth.

I'm going to shift over to test Q3 orders. At $72 million, test orders were down 1%, which was due to currency. Test orders include the $6.5 million order and there was no large order in Q2. So base orders again were within what we call the normal range or normal variability.

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