AVX Corporation's CEO Discusses F1Q13 Results - Earnings Call Transcript

AVX Corporation (AVX)

Q1 2013 Earnings Call

July 31, 2012 10:00 am ET

Executives

John Gilbertson - President & CEO

Kurt Cummings - VP, CFO, Treasurer & Secretary

Analysts

Matt Sheerin - Stifel Nicolaus

Shawn Harrison - Longbow Research

Jim Suva - Citi

Presentation

Operator

Good morning. My name is Sarah and I will be your conference operator today. At this time, I would like to welcome everyone to the first quarter earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. (Operator Instructions) Thank you.

Mr. John Gilbertson, President and CEO, you may begin your conference.

John Gilbertson

Thank you very much Sarah. Good morning. I would like to thank you for attending the AVX conference call regarding the results for our first fiscal year quarter that ended this June. I am John Gilbertson and with me today is Kurt Cummings, AVX’s Chief Financial Officer and Mr. John Lawing, our Vice President of the Advanced Products Group. I hope you had a chance to review our earnings release that was issued this morning.

The June quarter flowed along with the general macro economy and sales came in about 2.5% from the March quarter at $353.2 million. The overall gross book-to-bill during the quarter was 1.06 to 1. The backlog during the quarter increased and this is a positive sign going forward.

During the quarter, we were impacted by customer’s uncertainty and particularly their reluctance to take any inventory beyond the immediate end market demand. The key word during the quarter was uncertainty. This uncertainty impacted prices and margin as long-term orders were limited and we walked away from some marginal business to hold up margins.

The inventory situation, particularly in the distribution channel eased somewhat during the June quarter, but the global economic outlook and tepid consumer demand kept it below the normal replenishment that we had expected. In this quarter, the distribution channel represented approximately 39% of our overall shipments compared with 35% in the March quarter. So that is an encouraging sign.

Our shipments in distribution increased 7% from quarter four with increases in both May and June. We have seen improvement in the inventory position in the channel, but very little restocking activity. At this time we would say, we're still in a period of inventory restrain.

Distribution demand improvement is still anticipated, but looks as though it will not occur until after the summer period. We expect then to see more bookings from the distribution channel as a result of their need to restock as well as increased demand from our OEM and contract manufacturing customers. Overall visibility concerns remain as many customers continue to be reluctant to order product beyond the immediate demand.

Regionally, Europe remains a question mark. Surprisingly, we continue to see strength in automotive in this region, while non-automotive declines and currency movement hurt this region and overall AVX results.

Europe represented 25% of the total, down 3 points from last quarter, while Asian sales as a percent of the total increased 2 points to 46% and the Americas increased 1 point to 29% of the total. America continues to hold up relatively well.

Looking at the market segments, we continue to see growth in the Aerospace and Automotive markets. The weakness in the southern region for Europe in automotive has had a limited impact on AVX to-date due to the mix of our customers. Our FLEXITERM product from the Ceramics Group have seen growth in the Automotive segment with its increased reliability and that line is now fully loaded. We are adding capacity as fast as we can.

Continued electronic content in the Aerospace segment mainly in the commercial avionics sector for new planes and retrofitting of older planes is driving demand for both high-end technical solutions and also our legacy established reliability products such as the DIPGuard product line which now has a life span in excess of 30 years.

Newer applications like wing flap actuators are using our medium power film capacitors and switch mode power supply capacitor modules in system replacing the hydraulic systems of the previous generation of aircraft. The programs mentioned in the overall increase in demand for new aircraft is helping offset the slower defense related projects.

Alternate energy and transportation are also showing signs of encouragement. The slowdown in solar is starting to ease and the transportation market involving high-speed trains promises more orders for our medium and high-power film capacitors. We expect to see a large portion of this growth in Asia which we support from our operations in China which is now in full production.

Industrial markets appear to be holding up outside of Europe and for upgrades such as Smart Meters where our double layer carbon capacitors the BestCap continues to grow.

In the more moderate areas, tablets are slowing down the growth in the notebook and the ultrabook market. This will further apply pressures on the PC segment although the subset of high performance gaming towers should remain steady.

Global PC shipment activity has been about flat for several quarters although overall we saw growth in the computer markets that we serve. The market in general is projected to grow in the 5% range in the second half prior to the holiday period. Another possible improvement to PC demand could be the launch of Windows 8; again, this operating system is designed to run on laptops and tablets.

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