) earnings for the first quarter of fiscal 2014 were 49 cents,
which surpassed the Zacks Consensus Estimate by 12 cents.
Earnings were driven by higher-than-expected revenue, higher
gross margins, and foreign exchange gains.
Molex reported revenues of $936.4 million, which was up 6.1%
sequentially and 2.1% year over year, above the guidance range of
$890 million-$930 million (up 1%-5% sequentially).
Both the Americas and Europe were down from the June quarter.
Weaker-than-expected sales of mobile devices impacted sales in
the Americas, while Europe is showing signs of stabilization.
Asia/Pacific was up sequentially as both mobile and consumer
end markets ramped production to support the upcoming holiday
Revenues by End Market
generated 20% of quarterly sales, making it the largest
contributor. Segment revenues were up 1.0% sequentially and 21.0%
year over year. The strength was driven by the Americas due to
growing electronic content, increasing design wins and increasing
automobile production. Europe was notably weak, partially
offsetting the strength in the American region. The markets in
Korea and Japan also remained weak.
The increasing electronic content for safety systems,
powertrain, infotainment and telematics in automobiles is a
long-term positive because it expands the market for Molex's
connector technology. Additionally, Molex's exposure to China
(where a large amount of auto manufacturing has shifted) is a
secular demand driver in this market.
(16% revenue share) decreased 2.0% sequentially and 1.0% from the
year-ago level. The weakness was due to the soft PC market which
also affected the big technology companies such as
). The growth in cloud computing, increasing demand for storage
and the aging computer infrastructure remains long-term drivers
for this segment.
mobile device market
, accounting for 17% of revenues, increased 17.0% sequentially
while decreasing 12.0% from last year. Management has taken all
mobile device-related revenues (tablets, mobile phones,
smartphones and others from other segments to form this segment).
This segment was another strong sector in the last quarter.
Management stated that the mobile phones were the strongest
sector, followed by tablets, laptops and notebooks.
accounting for 15% of revenues, grew 19.0% sequentially and 6.0%
from last year. This segment accounted for most of the strength
in the last quarter. The improvement was driven by increased
carrier spending particularly in North America and China. Molex's
optical routing and digital cross-connect products position it
well for 4G LTE build-outs in China. So far, the company has
spent on this infrastructure in North America, Japan and Korea.
The company's high-speed copper products, traditional fiber
optic, and active optical fiber products witnessed good growth in
Secular drivers of the telecom infrastructure business include
increased Internet usage, increased volumes of mobile devices of
various kinds, more video being watched and transmitted, as well
as the adoption of cloud computing.
grew 7.0% sequentially but dropped 11.0% year over year to 14% of
revenues. The sequential increase was driven by strong demand for
white goods and navigation systems. Also, the gaming market was
strong sequentially. Continued weakness in TVs and digital
cameras (that are being impacted by increased demand for camera
phones) were responsible for the year-over-year softness.
Molex should do well in the long term, as its customers
introduce new products targeting the BRIC countries (Brazil,
Russia, India and China), as well as Vietnam and Thailand, where
the potential for growth is strong. Higher disposable income and
increased consumerism in developing countries are secular demand
drivers in this market.
accounted for 13% of revenues, up 1.0% sequentially and 7.0% from
last year. The strength in the last quarter was quite broad-based
across instrumentation, factory automation and transportation
segments. The company saw increased activity and design wins at
oil and gas refineries and some recovery in the semiconductor
test equipment market and machine builder market, particularly in
The remaining 5% of Molex's revenues came from
, which were down 1.0% sequentially but up 38.0% year over year.
The sequential decrease was due to cuts in government spending
and uncertainty around the funding of government programs which
is impacting the military market.
Total orders were up 6.7% sequentially but down 0.5% from the
September quarter. As a result, backlog improved 4.2%
sequentially and 5.9% from last year. The book to bill was around
Approximately 20% of Molex's total orders came from the
automotive segment, 17% from the data/ infotech market, 16% from
the mobile devices segment, 15% from the telecom market, 14% from
the consumer segment and 13% from the industrial market. The
remaining 5% came from the medical/military market.
Molex reported a gross margin of 32.3%, up 300 basis points
(bps) year over year. Molex attributed the improvement to higher
revenues, favorable product mix, lower material costs and
increased equipment utilization rates.
Operating expenses of $179.0 million were up 8.3% from the
previous quarter's $165.7 million, with the operating margin
expanding 190 bps year over year to 13.1%.
Molex's net income was $84.1 million compared to $71.3 million
in the September quarter of 2012.
The quarter's GAAP net income was $84.1 million or earnings
per share of 46 cents, up from $71.3 million or 40 cents in the
comparable quarter last year. Excluding the costs associated with
the pending merger with Koch Industries, non-GAAP net income was
$89.5 million or 49 cents per share compared with $57.1 million
or 32 cents a share in the last quarter.
Molex ended with cash and short-term investments balance of
$676.2 million versus $721.9 million in the prior quarter. Trade
receivables were $737.0 million, up from $703.4 million in the
prior quarter. DSOs went down from 69 days to around 68 days.
Cash generated from operations was $98.9 million, down from
$167.4 million in the September quarter of 2012. Capital expenses
were $47.0 million versus $69.4 million in the September quarter
Molex is a leading player in the fast-growing connector
market, with several secular growth drivers. The company appears
to be seeing improvement in its core markets, which led both
top-line and bottom-line results to exceed our expectations.
Additionally, macro conditions in Europe are improving, and the
positive effect may be expected to continue in the coming
The company reported higher orders and backlog also improved,
indicating macro visibility and improved demand for Molex's
products in the future. Also, management remains quite optimistic
about its revenue end markets, with automotive, mobile and
telecom markets expected to do well in the near term.
We believe Molex should be able to take advantage of the
product launches by customers and the improving macro
Molex's shares carry a Zacks Rank #2 (Buy).
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