Methode Electronics Management Discusses Q1 2013 Results - Earnings Call Transcript

Methode Electronics (MEI)

Q1 2013 Earnings Call

August 30, 2012 11:00 am ET

Executives

Donald W. Duda - Chief Executive Officer, President and Director

Douglas A. Koman - Chief Financial Officer, Principal Accounting Officer and Vice President of Corporate Finance

Analysts

David Leiker - Robert W. Baird & Co. Incorporated, Research Division

Jeremy Hellman - Divine Capital Markets LLC, Research Division

Gregory M. Macosko - Lord, Abbett & Co. LLC

Presentation

Operator

Welcome to the Methode Electronics Fiscal 2013 First Quarter Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded.

This conference call does contain certain forward-looking statements, which reflects management's expectations regarding future events and operating performances and speak only as of the date hereof. These forward-looking statements are subject to the Safe Harbor protection provided under the securities laws. Methode undertakes no duty to update any forward-looking statements to conform the statements to actual results or changes in Methode's expectations on a quarterly basis or otherwise.

The forward-looking statements in this conference call involve a number of risks and uncertainties. The factors that could cause actual results to differ materially from our expectations are detailed in Methode's filings with the Securities and Exchange Commission, such as our annual and quarterly report. Such factors may include, without limitations, the following: dependence on a small number of large customers, including 2 large automotive customers; dependence on the automotive, appliance, computer and communications industries; further downturns in the automotive industry or the bankruptcy of certain automotive customers; ability to compete effectively; customary risks related to conducting global operations; dependence on the availability and price of raw materials; dependence on our supply chain; ability to keep pace with rapid technological changes; ability to improve gross margins due to a variety of factors; ability to avoid design or manufacturing defects; ability to protect our intellectual property; ability to withstand price pressure; the usage of a significant amount of our cash and resources to launch new North American automotive programs; location of a significant amount of cash outside of the U.S.; currency fluctuations; ability to successfully benefit from acquisitions and divestitures; ability to withstand business interruptions; income tax rate fluctuations; ability to implement and profit from newly acquired technology; and the future trading price of our stock.

It is now my pleasure to introduce your host, Don Duda, President and Chief Executive Officer for Methode Electronics.

Donald W. Duda

Thank you, Rob, and good morning, everyone. Thank you for joining us today for our fiscal 2013 first quarter financial results conference call. I am joined today by Doug Koman, Chief Financial Officer; and Ron Tsoumas, Controller. Both Doug and I have comments, and afterwards, we will be pleased to take your questions.

Methode's first quarter sales improved 7% to nearly $119 million, driven mainly from increased sales of the Ford center console program, lead frame assembly products, torque-sensing products for e-bikes and motorcycles and sales for the recently acquired AMD. These sales improvements were partially offset by softness in our Interconnect and Power Products segments.

In our release today, we have reiterated full year fiscal 2013 sales guidance of $495 million to $525 million. As we discussed last quarter, the launch of a user interface panel for a large laundry program, along with the launch of multiple automotive programs in Europe in the second and third quarters, is expected to improve second and third quarter sales and earnings sequentially. Additionally, the launch of the General Motors center console program in the fourth quarter is anticipated to make that quarter Methode's strongest in sales and earnings for fiscal 2013. However, that being said, we remain cautious about the macroeconomic environment in Europe and are managing our risks very carefully, particularly concerning the second half of our fiscal year.

Approximately 45% of our manufacturing sales in Europe are for products exported to North America. At this point, that portion of the business is projected to remain stable. Our concern is mainly for those products manufactured and distributed within Europe. Currently, customer orders through the end of this calendar year are in line with our expectations, but as I said, we remain cautious.

First quarter earnings per share of $0.10 improved from $0.04 last year. Higher overall sales volume, higher other segment income, lower performance-based compensation and severance expense and a commodity price investment drove earnings. First quarter earnings were negatively impacted this year by higher income tax expense, higher selling and administrative expense due to the acquisition of AMD and higher design, development and engineering costs.

As we have discussed over the last several quarters, design, development and launch costs in both our Automotive and Power Products segments continued to impact net income and gross margins. Additionally, vendor production and delivery issues and increased sales of products with a higher prime cost further affected our North American Automotive income. In total, the development and launch costs and vendor charges lowered first quarter net income by approximately $2.5 million or $0.07 per share and lowered our gross margin by 3.1 percentage points.

Our vertical integration of Advanced Molding and Decorating or AMD continues to progress as anticipated. At the end of the first quarter, AMD is successfully producing decorative components for the majority of the Ford center console products we supply. As a result, we anticipate vendor production and delivery costs should be eliminated in this second quarter. Additionally, our Ford center console program originally carried a higher prime cost due to the high purchase content, which reduces the program's overall gross margins. With the vertical integration substantially complete, we should see gross margins in the Automotive segment begin to improve, reaching our target of low to mid 20s in fiscal 2014.

Read the rest of this transcript for free on seekingalpha.com

More from Stocks

Markets Look Confused After Latest Beating

Markets Look Confused After Latest Beating

General Electric Expulsion From Dow Symbolizes Unsettled Week in Markets

General Electric Expulsion From Dow Symbolizes Unsettled Week in Markets

How Small-Cap Stocks Can Protect Your Portfolio From a Trade War

How Small-Cap Stocks Can Protect Your Portfolio From a Trade War

Week Ahead: Trade Fears and Stress Tests Signal More Volatility To Come

Week Ahead: Trade Fears and Stress Tests Signal More Volatility To Come

3 Great Stock Market Sectors Millennials Should Invest In

3 Great Stock Market Sectors Millennials Should Invest In