Harman International Industries' CEO Discusses F3Q 2012 Results - Earnings Call Transcript

Harman International Industries, Inc. (HAR)

F3Q 2012 Earnings Call

April 30, 2012 11:00 am ET

Executives

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

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

Robert V. Lardon – Vice President, Investor Relations

Analysts

David Leiker – Robert W. Baird & Co.

Christopher Ceraso – Credit Suisse

Adam Brooks – Sidoti & Co. LLC

Ravi Shanker – Morgan Stanley & Co. LLC

David Leiker – Robert W. Baird & Co.

Presentation

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the Harman’s Fiscal 2012 Third Quarter Earnings Conference 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 Monday, April 30, 2012.

It is now my pleasure turning the conference over to Mr. Dinesh Paliwal, Chairman, President and CEO of Harman International. Please go ahead, sir.

Dinesh C. Paliwal

Good morning, ladies and gentlemen, and thank you for joining the Harman third quarter fiscal year 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.

I just returned from a 10 day trip to China and just wanted to share with you quickly, I took my entire Harman executive management team to China, as we met the top customers and key government officials. We opened two new manufacturing and engineering plants in Northern China. We opened an engineering center in Beijing, inaugurated second ever flagship store in Beijing, exhibited full suite of technologies at the Beijing Auto Show, and as a result, we also signed major contracts with domestic automakers representing $500 million.

So in our earnings release published this morning, we shared with you encouraging news and solid financial results marking a tenth consecutive quarter of year-over-year improvement to the top and bottom line.

Before I dive into results of this quarter, I want to talk about something very strategic and huge win for our company. I’m extremely pleased to share with you a big news. With the success we’ve had with leading automakers, and our technology leadership, and the knowledge of our innovation pipeline these automakers have, a leading automaker has selected Harman for a follow-on award. And this more than $2 billion award is the largest ever in the industry, and for sure also for Harman ever.

So I’m obviously very, very excited and esthetic, it’s a slam-dunk validation on our innovation pipeline; and also it just validates our strategy that in-dash infotainment systems will continue to drive the progress forward; and it also tells us that the take rates are going up, which are reflected in our year-to-date growth in infotainment.

Now, let us talk about our quarterly results. In the quarter, our sales increased 16%, and are up 19% year-to-date. Our operating income is up 7% for the quarter; and up 36% year-to-date. All our divisions posted higher sales with infotainment division sales growing by 15%; lifestyle by 20%; and professional by 8%.

The luxury car segment reserve has been highly resilient and has outpaced the overall automotive market; and we continue to gain market share. Our successful expansion into the mid-segment with our scalable platform has captured additional growth opportunities. To expand our market, we have invested smartly in high-growth BRIC countries, setting up five new manufacturing and engineering centers with $500 million of new orders recently in India and China, we are well on track to more than double our BRIC sales in next three years, and achieve our $1.5 billion sales target by 2015.

That’s the pace which never been done in any industry, almost from nothing to $1.5 billion in over a span of six years or so. In BRIC country this quarter, sales increased by 28% led by China with sales growth of 30%. If you look at the year-to-date basis, BRIC country sales are up 30%, led by China at 38%, which is more than four times the GDP.

We continue to expand margins in our largest division, infotainment. Our infotainment sales in the quarter grew by 15%, and our operating margin improved to 7.3%. Higher sales were driven by robust demand in the luxury automotive segment, and continued strong growth in BRIC countries. The rapid adoption of the scalable platform is helping us accelerate our margins and reduce our overall cost. We gained the largest ever multi-year order from Geely, which is also the largest Chinese domestic automaker, who also owns Volvo cars from Sweden.

We also picked up BAIC Motors from China, and we replaced a competitor to supply cross carline infotainment systems to Tata Motors in India, that’s the largest Indian automaker who also owns Jaguar Land Rover.

At the Geneva Motor Show we introduced our latest innovations in connectivity technologies, and we were recently awarded Toyota’s most coveted technology and development award, we’re very proud of that.

As I mentioned earlier, we’re pleased to report that our lifestyle division sales increased 20%. Harman’s portfolio of world class brand continues to distinguish Harman from competition. We extended our business with two longstanding customers BMW and Mercedes Benz, with multi-year cross carline branded audio orders. And there are separate press releases put out.

As noted, Harman’s expansion into emerging markets continued with the largest ever branded audio award, in China and India with BAIC, Geely, Great Wall and Tata Motors. These multi-year awards further strengthen the order backlog for branded audio system, which now stands at $3.2 billion; and carries in mid-teens operating margin.

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