MTS Systems (MTSC)

Q4 2011 Earnings Call

November 18, 2011 10:00 am ET

Executives

William V. Murray - Interim Chief Executive Officer, Interim President, Director and Member of Compensation Committee

Susan E. Knight - Chief Financial Officer and Vice President

Analysts

Elizabeth Murphy Lilly

Adam France - Keane Capital

Michael A. Hamilton - RBC Wealth Management, Inc., Research Division

John Franzreb - Sidoti & Company, LLC

Presentation

Operator

Good day, everyone and welcome to the MTS Fourth Quarter 2011 Earnings Release Call. This call is being recorded. Now I'd like to turn the conference over to Ms. Sue Knight. Please go ahead.

Susan E. Knight

Thank you, Jennifer. Good morning, and welcome to MTS Systems Fiscal 2011 Fourth Quarter Investor Teleconference. Joining me on the call today is Bill Murray, interim Chief Executive Officer.

I'd like to remind you that statements made today, which are not a historical fact, should be considered forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. Future results may differ materially from these statements 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 forms 10-Q and 10-K. The company disclaims any obligation to revise forward-looking 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 the operating performance of the company over time, but they should not be considered in isolation or as a substitute for GAAP measures.

Bill will now begin his update our on fourth quarter results.

William V. Murray

Thanks, Sue. Good morning, everyone. I want to start by acknowledging this is my first earnings call in my role as interim CEO. I've met many of you on the call today, and I look forward to meeting those of you I haven't yet had the pleasure to meet. I have served on the MTS board for just over 1.5 years and I'm approaching 3 months as interim CEO. It's a great time to join the company. We have strong momentum in both of our businesses. We have highly capable and dedicated employees around the world as evidenced by our excellent performance. I am pleased to have the opportunity with Sue today to communicate fourth quarter and full year 2011 results.

I would like to start by outlining the agenda for today's call. I will begin with key messages. Then I will review the order summary for Q4 and the full year. I will provide an update on government matters then I'll turn it back to Sue to review financial details. And finally, I will review our outlook for 2012.

First, let's talk about the 3 key messages from the quarter. Q4 was strong across the board. We achieved an all-time revenue record for a single quarter, which drove total company earnings per share and cash flow. We had strong performance by both businesses. The U.S. Air Force suspension was lifted, and we filled 2 key leadership positions, the General Counsel and Chief Compliance Officer and the General Manager of Test Leadership position.

The second key message was our equally impressive total year performance. We achieved record orders of $540 million. The first time ever to exceed $500 million. The third key message, we are well positioned going into 2012 to continue our momentum by focusing on our unique applications expertise, continuing our ongoing investments in emerging mediums and delivering best total value through product performance improvements and product cost reductions.

Now moving to orders and backlog. In Q4, MTS achieved record orders of $133 million, 3% growth year-over-year, including 2 percentage points favorable currency impact. This is the fifth quarter in a row with greater than $115 million in orders. Also in Q4, we had no large orders greater than $5 million. Adjusting for one large order in the prior year of $6 million base orders grew 8%. For the total year, MTS achieved record orders of $540 million. We exceeded $0.5 billion for the first time. Our performance validates we've got what it takes to win in a tough economic environment by increasing performance, while reducing cost.

Also notable is our backlog remains near our historic high of $287 million. Now reviewing each business segment, Sensors achieved orders of $25 million in Q4, an 11% year-over-year increase, including 4 percentage points favorable currency impact. Europe was up 29%, driven by the energy, plastics and rubbers markets. The Americas and Asia were down slightly, 2% and 6%, respectively, due to the continued weakness in the steel market and weaker demand for liquid level in the oil and gas markets. Overall orders in Q4 were down sequentially, about 10% from Q2 and Q3 but still at a high level. We don't believe there is a significant economic change but we are monitoring closely.

Turning to the 2 major market segments. The Sensors, our industrial orders for the quarter are up 9% year-over-year from $20.2 million to $22.1 million. Energy, particularly wind, continues to be a growth story. We're also seeing a continuation of year-to-date market trends of plastic, rubber, energy and wood all up, while still continues to be weak. Other markets with Q4 strength including machine tools in Europe and Asia and recreational vehicles in North America.

Our Mobile Hydraulics segment is up 21% year-over-year, from $2.3 million to $2.8 million. North America was the driver with growth of 58%, driven by new agriculture customers and strong Caterpillar volume. Europe was down approximately 5% due to weak European road building demand. Our backlog in Q4 declined 10% sequentially from $17.9 million to $16.2 million as we returned to historically lead times of approximately 8 weeks in the Sensors business.

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