Sanmina - SCI Corporation's CEO Discusses F3Q12 Results - Earnings Call Transcript

Sanmina - SCI Corporation (SANM)

F3Q12 Earnings Call

July 23, 2012 5:00 p.m. ET

Executives

Paige Bombino – IR Director

Jure Sola – Chairman and CEO

Bob Eulau – CFO

Analysts

Wamsi Mohan – Bank of America Merrill Lynch

Jim Suva – Citi

Craig Hettenbach – Goldman Sachs

Brian Alexander – Raymond James & Associates

Sean Hannan – Needham & Company

Shawn Harrison – Longbow Research

Christian Schwab – Craig-Hallum Capital

Sherri Scribner – Deutsche Bank

Osten Bernandez – Cross Research

Amit Daryanani – RBC Capital Markets

Presentation

Operator

Good afternoon. At this time, I would like to welcome everyone to the Sanmina-SCI third quarter fiscal year 2012 earnings conference call. [Operator instructions.] I would now like to turn the call over to your host Ms. Paige Bombino. Ma’am, you may begin.

Paige Bombino

Thank you operator. Good afternoon, ladies and gentlemen, and welcome to Sanmina-SCI’s third 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 nine months ended June 30, 2012 on a GAAP basis, as well as certain non-GAAP financial information. A reconciliation between the GAAP and non-GAAP financials 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 that relate to the income statement measures will be directed at our non-GAAP financial results. Accordingly, unless otherwise stated in this 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. Also thank you all for being here with us today. With me today on this conference call is Bob Eulau, our CFO. Our agenda: Bob will review our financial results for the third quarter. I will follow up with 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 this call over to Bob.

Bob Eulau

Thanks Jure, and thanks again everyone for joining us today. Please turn to slide three. Overall, the third quarter was much better from a revenue perspective, but was challenging from a margin standpoint. Revenue of $1.55 billion was up 5.9% on a sequential basis, and down 7.5% from the third quarter last year. This was above the high end of our guidance of $1.475 billion to $1.525 billion.

Our gross margin came in at 6.8%, which was down 60 basis points from the second quarter. Operating margin declined 30 basis points from last quarter to 2.8%. Non-GAAP earnings per share was $0.26, which was at the low end of our guidance for the quarter. This was based on 83.6 million shares outstanding on a fully diluted basis.

Finally, cash generation was strong this quarter, with cash flow from operations at $48 million and free cash flow at $34 million. I’ll discuss cash in more detail in a few minutes. Please turn to slide four.

Revenue was up 5.9%, or $86 million, from Q2 to $1.55 billion. From a GAAP perspective, we reported net income of approximately $9 million, with results in earnings per share of $0.11. This was up relative to last quarter by $0.13. The GAAP results included a $4.2 million charge for the call premium and unamortized issuance costs associated with the redemption of $100 million of debt during the quarter.

Restructuring costs totaled about $3.9 million for Q3. The cost primarily reflect 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 $3-4 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 third quarter. At $106 million, gross profit was down $2 million from the prior quarter. Gross margin came in at 6.8%, which was 60 basis points below the previous quarter. Gross margin was lower than we had anticipated for the quarter, primarily due to lower profitability in the components business and a one-time foreign exchange exposure that was not fully hedged. The components business was a disappointment, and we are aggressively evaluating alternatives to quickly improve profitability in this business.

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