Harman International's CEO Discusses F1Q 2012 Results - Earnings Call Transcript

Harman International Industries Inc. (HAR)

F1Q 2012 Earnings Call

October 21, 2011 11:00 am ET

Executives

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

Herbert K. Parker – Chief Financial Officer and Executive Vice President

Analysts

Himanshu Patel – JPMorgan

Christopher Ceraso – Credit Suisse

David Leiker – Robert W. Baird

Adam Brooks – Sidoti & Company

Michael Razewski – Douglas Lane

Presentation

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the Harman’s Fiscal 2012 First 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, this conference is being recorded Friday, October 21, 2011. I would now like to turn the conference over to Dinesh Paliwal, Chairman, President and CEO. Please go ahead.

Dinesh C. Paliwal

Good morning, ladies and gentlemen, and thank you for joining the Harman's first quarter fiscal 2012 investor and analyst call. I’m joined in Stamford today by our Chief Financial Officer, Herbert Parker, and our Vice President, Investor Relations, Robert Lardon.

In our earnings release published this morning, we shared with you positive financial results making it eighth straight quarter of year-over-year improvement to the top and bottom line.

Our sales increased 26% and our earnings per share 72% up. Operating income was up 74% and our total liquidity stands at $1.2 billion. Our last 12 months EBITDA was $366 million or 9.2% of sales.

Regardless of current market dynamics, we remain laser focused on executing our growth strategy supported by four key pillars growing smart infotainment, growing car audio, growing in emerging markets, and getting our cost and capital structure right.

We are pleased to report that our infotainment and audio backlog remains at as record high $14.5 billion, with over 40% of our infotainment backlog in higher margin scalable systems.

We are winning new car audio orders and taking shares from our competitors across the world.

Building on last years momentum in BRIC countries were we grew 68% sales in last years fiscal year I’m pleased to say, we are continuing to strength and grow sales by 91% in BRIC countries in this past quarter.

To meet this rising demand, we have added capacity and expand our distribution channels were necessary, while continuing to drive cost out of our global manufacturing footprint. We have also created scalability and flexibility to deal with any significant fluctuations and demand.

Overall, we continue to promote a continuous cost management culture by launching new internal cost management initiatives following our very successful STEP Change permanent cost-savings program, which we concluded last year with astounding $434 million permanent cost reductions.

I am very excited to share with you that we have launched a marketing campaign in North America to be expanded into other key markets. This is to increase automotive audio take rates, home audio and multimedia sales. We believe that this campaign will also support growth and market share gains across our entire business. We continue to innovate and maintain a rich pipeline of technologically advanced system portfolio and we have hosted several technology days with our major customers in Europe and Asia. Many of you will be joining us next Wednesday, October 26, for our Investor and Analyst Day in Nashville, Tennessee.

At this event, you will have the opportunity to witness Harman Technology demonstration and get further insights into our innovation pipeline. In addition, we will update our mid-term 2013 guidance and also provide guidance for fiscal ’12. For those of you not attending, a press release will be issued on Monday, October 24, 2011 with call in details so that you can hear it online as well as after the call is completed.

During our last earnings call on August 10, I informed you of the $85 million cost impact identified due to the sharp rise in cost of neodymium magnets. With increased sales, the growth impact of neodymium has risen slightly to $90 million while I look forward to updating you on the progress of our cost mitigation efforts at Analyst Day next Wednesday. I’m pleased to say, we have made a lot of progress.

And it is trending in the right direction, because of our focus on operational excellence and our ability to pass on cost increases.

Ladies and gentleman, we are in a new growth phase at Harman. The strong footholds in each of our BRIC countries, further diversifying it and expanding our growth prospects. Our operation realignment will better enable us to focus and make measurable improvement on the profitability of our infotainment business and we are aggressively working on increasing our backlog of scalable system.

As I said, we are excited to have launched a global marketing campaign featuring some of the world’s most prominent music artists. To support further penetration of our five-year plan across our business lines, in particular car audio tape rates, which is a very healthy business.

We continue to invest in innovation and capacity expansion to take advantage of global opportunities as well as these economic headwinds. These initiatives executed by dedicated and committed Harman employees worldwide, about to say, have resulted in eight consecutive quarters of improvement to both our top and bottom line.

I will now ask our Chief Financial Officer, Herbert Parker to provide a closer look at our financial results.

Herbert K. Parker

Thank you, Dinesh, and good morning to everyone. We are very pleased to have begun our new fiscal year with a solid first quarter. We were able to execute well, I guess, our opportunities during the quarter despite the cost pressures that Dinesh had reviewed and achieve very good year-over-year improvement.

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