Methode Electronics Inc. (MEI)

F4Q10 (Qtr End 05/01/2010) Earnings Call

July 1, 2010 11:00 AM ET


Don Duda – President and CEO

Doug Koman – Chief Financial Officer


David Leiker – Robert W. Baird

Jeremy Hellman – Divine Capital Markets



Greetings. And welcome to the Methode Electronics Fiscal 2010 Fourth Quarter Earnings Presentation. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. (Operator Instructions) As a reminder, this conference is being recorded.

This conference call does contain certain forward-looking statements, which reflect management’s expectations regarding future events and operating performance and speak only as of the date hereof. These forward-looking statements are subject to the Safe Harbor protection provided under the securities laws. Methode undertakes no duty to update any forward-looking statements to conform the statement to actual results or changes in Methode’s expectation on a quarterly basis or otherwise.

The forward-looking statements in this conference call involve a number of risks and uncertainties. The factors that could cause actual results to differ materially from our expectations are detailed in Methode’s filings with the Securities and Exchange Commission, such as our annual and quarterly report.

Such factors may include, without limitations, the following, dependence on a small number of large customers; dependence on the automotive, appliance, computer and communications industries and the consumer and industrial equipment markets; seasonal and cyclical nature of some of our businesses, including further downturns in the automotive industry; ability to compete effectively in our technology-based business and the markets in which we operate; customary risks related to conducting international operations; ability to keep pace with rapid technological changes; ability to avoid design or manufacturing defects; ability to protect our intellectual property or if we infringe or are alleged to infringe, on another person’s intellectual property; dependence on the availability and price of raw materials; affect of acquisition or divestiture of various business operations on our business, financial condition and operating results; significant fluctuation between the U.S. dollar and other currencies; unfavorable tax legislation; the future trading price of our common stock could be subject to wide price fluctuations; and risks of owning real property.

It is now my pleasure to introduce your host, Don Duda, President and Chief Executive Officer for Methode Electronics. Mr. Duda, you may begin.

Don Duda

Thank you, Claudia, and good morning, everyone. Thank you for joining us today for our fiscal 2010 fourth quarter and full year financial results conference call. I am joined today by Doug Koman, Chief Financial Officer, and Ron Tsoumas, Methode’s Controller. Both Doug and I have comments today and afterwards we will be pleased to take your questions.

Methode had many accomplishments in fiscal 2010. During the year, we returned to profitability, completing two major restructurings, which we believe have successfully repositioned our business for future growth and profitability. Also, we refocused all our business segments on solutions selling, completely redesigned Methode’s website and finished the year with a solid balance sheet.

Additionally, we concluded fiscal 2010 with strong financial results, while overcoming a number of obstacles. Fourth quarter net sales increased $6.7 million or 7.5% over the fourth quarter of fiscal 2009, in spite of the planned exit of legacy products and no sales to Delphi in the current quarter, compared to $7.9 million in sales to Delphi last year.

In addition to the quarter-over-quarter improvement, we also realized a sequential improvement in fourth quarter sales in each of our key segments. For the year, net sales decreased 12.3%, mainly due to the exit of legacy products and the loss of the Delphi business.

For the fourth quarter, excluding restructuring and impairment charges, Methode’s net income improved $21.1 million to $16.4 million or $0.45 per share, as compared to a net loss of $4.7 million or $0.10 per share in fiscal 2009.

Improved sales and lower overall manufacturing costs due to the company’s restructuring contributed a higher net income in the fourth quarter. This was accomplished even though we had higher selling and administrative expense due to the legal costs associated with the Delphi supply agreement and patent dispute of approximately $1.5 million.

Additionally, there were other items included in our fiscal 2010 numbers that benefited our fourth quarter results, which Doug will discuss in his financial summary. Fourth quarter and full year gross margins also improved year-over-year, in each of our key segments due to our significant restructuring efforts and new product initiatives.

Consolidated gross margins were 23.5% in the current fourth quarter compared to 8.1% in the prior year’s quarter and 21.4% in fiscal 2010 compared to 17% in fiscal 2009. For the year, excluding restructuring, impairment charges and one-time pricing contingencies, Methode’s net income improved to 17.8 million or $0.48 per share compared to net income of $6.3 million or $0.17 per share in fiscal 2009.

While I feel confident about our long-term ability to capitalize on our strategy and believe that the fourth quarter reflects the rebuilding of Methode’s revenue stream, we would like to caution everyone that despite the revenue gains we made in the fourth quarter, the first quarter of fiscal 2011 will likely look different than the fourth quarter for three main reasons.

First, our fiscal fourth quarter’s typically a strong quarter. Secondly, traditionally, our North American automotive customers reduce operations for a period of time in July for model changeovers, making July our slowest automotive production month of the year and the July results are included in our first quarter fiscal 2011 financials.

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