Sanmina-SCI's CEO Discusses F2Q 2012 Results - Earnings Call Transcript

Sanmina-SCI Corporation (SANM)

F2Q 2012 Earnings Call

April 24, 2012 5:00 p.m. EDT

Executives

Paige Bombino – IR Director

Jure Sola – Chairman and CEO

Bob Eulau – CFO

Analysts

Sean Hannan – Needham & Company

Craig Hettenbach – Goldman Sachs

Wamsi Mohan – Bank of America

Shawn Harrison – Longbow Research

Brian Alexander – Raymond James & Associates

Jim Suva – Citigroup

Sherri Scribner – Deutsche Bank

Christian Schwab – Craig-Hallum Capital Group

Austin Bernandez – Analyst

Amit Daryanani – RBC Capital Markets

Presentation

Operator

Good afternoon. My name is [Britney] and I will be your conference operator today. At this time, I would like to welcome everyone to the Sanmina-SCI second quarter fiscal year 2012 earnings conference call. (Operator Instructions). Thank you.

I would now like to turn the conference over to your host Ms. Paige Bombino. Ma’am, you may begin.

Paige Bombino

Thank you, [Britney]. Good afternoon, ladies and gentlemen, and welcome to Sanmina-SCI’s second quarter fiscal 2012 earnings call. A copy of today’s release is available on our website in the Investor Relations section. You can follow along with our prepared remarks in the slide posted on our website. Please turn to page two, the Safe Harbor Statement.

During this conference call, we may make projections or other forward-looking statements regarding future events or the future financial performance of the company. We caution you that such statements are just projections. The company’s actual results of operations may differ significantly as a result of various factors including the state of the economy, economic conditions in the electronics industry, changes in customer requirements and sales volume, competition and technological change. We refer you to our quarterly and annual reports filed with the Securities and Exchange Commission. These documents contain and identify important factors that could cause actual results to differ materially from our projections or forward-looking statements.

You will note in our press release and slides issued today that we have provided you with statements of operations for the three months and six months ended March 31, 2012 on a GAAP basis, as well as certain non-GAAP financial information. A reconciliation between the GAAP and non-GAAP financial information is also provided in the press release and slides posted on our website. In general, our non-GAAP information excludes restructuring costs, acquisition and integration costs, non-cash stock-based compensation expense, amortization expense and other infrequent or unusual items to the extent material. Any comments we make on this call as it relates to the income statement measures will be directed at our non-GAAP financial results. Accordingly, unless otherwise stated in the conference call, when we refer to gross profit, gross margin, operating income, operating margin, net income and earnings per share, we are referring to our non-GAAP information.

I would now like to turn the call over to Jure Sola, Chairman and Chief Executive Officer.

Jure Sola

Thanks, Paige. Good afternoon, ladies and gentlemen, and welcome to our conference call. Here with me today is Bob Eulau, our CFO.

Bob Eulau

Good afternoon, everyone.

Jure Sola

Well, the agenda we have today is that Bob will review our financial results for the second quarter fiscal year 2012. I will follow up with the comments relative to Sanmina-SCI results and future goals. Then Bob and I will open for question-and-answers.

And now I would like to turn the call over to Bob.

Bob Eulau

Okay. Thanks, Jure. And please turn to slide three.

Overall, the second quarter was challenging but not significantly different from what we had expected. Revenue of $1.46 billion was down 2.6% on a sequential basis and down 6.8% from the second quarter last year. This was at the low end of our guidance of $1.45 billion to $1.55 billion.

Our gross margin came in at 7.4%, which was up 10 basis points from the first quarter. Operating margin declined 20 basis points from the first quarter to 3.1%. Non-GAAP EPS was $0.27, which was at the midpoint of our guidance for the quarter. This was based on 84.1 million shares outstanding on a fully diluted basis.

Finally, cash generation was strong this quarter, with cash flow from operations of $60 million and free cash flow at $46 million. I’ll discuss cash in more detail in a few minutes. Please turn to slide four.

Revenue was down 2.6% or $39 million from Q1 to $1.46 billion. From a GAAP perspective, we reported a net loss of approximately $1 million, which results in earnings per share of negative $0.02. This was down relative to last quarter by $0.12. The GAAP loss included a $6.5 million charge for the call premium and unamortized issuance costs associated with the redemption of $150 million of debt during the quarter. There was also a $2.8 million reserve that was taken for a customer that declared bankruptcy during the quarter.

Restructuring costs totaled $5.5 million for Q2. The cost primarily reflects what we’ve been recognizing as expenses are incurred related to real estate. Looking forward, we will continue to see some ongoing restructuring charges on our GAAP P&L of approximately $4 million to $5 million per quarter that primarily relate to real estate which is being held for sale.

My remaining comments will focus on the non-GAAP financials for the second quarter. At $108 million, gross profit was down $2 million from the prior quarter. Gross margin came in at 7.4%, which was 10 basis points higher than the previous quarter. Gross margin was towards the high end of the range that we had anticipated for the quarter.

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