SED International Holdings' CEO Discusses F4Q 2011 Results - Earnings Conference Call

Call End :16:57

SED International Holdings, Inc (SED)

F4Q 2011 Earnings Call Transcript

September 14, 2011, 4:30 pm ET


Brandi Floberg - IR

Stan Baumgartner - CFO

Jonathan Elster - President, CEO


JD Abouchar - GRT Capital



Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to the SED International fiscal 2011 and fourth quarter financial results conference call. During today's presentation, all parties will be in a listen-only mode. Following the presentation the conference will be opened for questions. (Operator Instructions).

This conference is being recorded today, September 14, 2011. I would now like to turn the conference over to Brandi Floberg. Go ahead, please.

Brandi Floberg

Thank you, Operator, and good afternoon, everyone. Thank you all for joining us today for SED International Holdings' 2011 fiscal year and fourth quarter conference call. Joining us today from the management of SED International are Jonathan Elster, Chief Executive Officer, and Stan Baumgartner, Chief Financial Officer.

Before we begin the call, I would like to remind everyone that during this conference call and webcast statements made that are not historical or current facts are deemed forward-looking statements. These statements often can be identified by the use of terms such as may, will, expects, believes, anticipates, estimates, approximates or continue or the negative thereof.

The company wishes to caution you not to place undue reliance on any such forward-looking statements which speak only as of today's date. Any forward-looking statements represent management's best judgment as to what may occur in the future.

However, it is important to remember that forward-looking statements are subject to risks, uncertainties and important factors beyond the control of the company that could cause actual results and events to differ materially from historical results of operations and events and those presently anticipated or projected.

These factors include adverse economic conditions, entry of new and stronger competitors and adequate capital, unexpected cost, failure to gain product approval in foreign countries and failure to capitalize upon access to new markets.

The company disclaims any obligation to revise any forward-looking statements to reflect events or circumstances after the date of today's call and webcast or to reflect the occurrence of anticipated or unanticipated events.

These factors and others are discussed in the management's discussion and analysis section of the company's reports on Form 10-K for the fiscal year ended June 30, 2011 and periodic filings on Form 10-Q.

These reports are available by visiting the Investor Relations section of the company's website at as well as on the SEC website at

With that said, I would now like to turn the call over to Stan Baumgartner, Chief Financial Officer of SED. Good afternoon, Stan.

Stan Baumgartner

Thanks, Brandi. Good afternoon, everyone, and, again, thank you for joining our call today. I'll provide a brief review of our financial results for the fourth quarter and a full review of the fiscal year 2011 results ended June 30, 2011.

Net sales for the fourth quarter increased 14.6% to $152.6 million compared with $133.1 million reported in the fourth quarter last fiscal year. In terms of revenue by product category, Microcomputer product sales increased by $20.7 million or 17.9% to $136.4 million driven mainly by increases in hard drive products and software sales.

Consumer electronic sales declined 7.1% to $16.2 million compared with $17.4 million in fiscal 2010. the decline was primarily due to a decrease in lower average selling prices year-over-year and the discontinuance of a consumer electronics product line we were carrying.

Looking at the fourth quarter revenues by geography, both our domestic and Latin America businesses posted strong gains in the fourth quarter of fiscal 2011. Domestic revenues, including export sales after eliminations increased 13.8% to $119.2 million. The increase was driven by computer-related sales including specifically hard drives and software product items.

US export sales for the period net of eliminations grew by 11.7% to $25.2 million compared with $22.7 million in fiscal year 2010. The increase in 2011 was attributed mainly to growth from sales of computer products, specifically hard drives, branded PCs and peripheral devices, including printers and consumable printer products.

Our Latin American sales after translation into US dollars increased 11.3% to $34.5 million. When measured in local currencies, Latin American sales rose approximately 10% with this increase driven by higher sales of computer products, printers and consumable products.

Gross margin for the fourth quarter decreased by 64 basis points year-over-year to 4.7% primarily due to a higher percentage of lower margin hard drives and software sales. When accounting for the impact of foreign currency on our gross margins, including the translation gains and losses, gross margin decreased not by 64 but by 31 basis points compared to the fourth quarter a year ago.

Selling, general and administrative expenses, excluding depreciation and amortization expense and foreign currency translation gains and losses, were $6.5 million or 9.7% increase compared with the $5.9 million in fiscal 2010. The main driver of the increase year-over-year was selling expenses, including commissions, which helped drive the 14.6% sales increase.

As a percent of revenues, SG&A was 4.2% of net sales in fiscal 2011 compared with 4.6% in fiscal 2010.

Operating income for the fourth quarter declined 6% to $933,000 due primarily to the lower gross margins and the 9.7% increase in SG&A associated with the higher selling cost but helping to drive growth.

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