) earnings for the fourth quarter of fiscal 2013 missed the Zacks
Consensus Estimate by 2 cents, or 6.8%. Earnings were impacted by
weaker-than-expected revenue and a higher tax rate, helped by
foreign exchange gains.
Molex reported revenue of $882.9 million, which was up 3.5%
sequentially and 2.8% year over year, within the guidance range
of 870-910 million (up 2-7% sequentially).
Both the Americas and Europe were up from the Mar quarter,
with the Asia/Pacific remaining flat. Weaker-than-expected sales
of mobile devices impacted sales in the region. The Americas
region appears to be regaining strength with Europe showing signs
Revenue by End Market
market generated 21% of quarterly sales, making it the largest
contributor. Segment revenue was up 6.2% sequentially and 22.4%
year over year. The strength in the last quarter was driven by
the Americas due to growing electronic content, increasing design
wins and increasing automobile production. Asia also rebounded
strongly from the seasonally softer Mar quarter. Europe was
notably weak, partially offsetting the strength in the other two
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. This and Molex's exposure to China (where a
large amount of auto manufacturing has shifted) are secular
drivers of demand in this market.
market (18% revenue share) grew 11.3% sequentially, but remained
3.4% below the year-ago level. The weakness is of course because
of the PC market, which remains a sore point not just for Molex,
but also all the big technology companies such as
) that remain dependent on it. Management stated that storage,
peripheral devices and services drove results in the last
quarter. The growth in cloud computing, increasing demand for
storage and the aging computer infrastructure remains longer term
drivers for this segment.
market, at 15% of revenue, dropped to the third position.
Management has taken all mobile device-related revenue (tablets,
mobile phones, smart phones and others from other segments to
form this segment). Accordingly, the end market presentation of
revenue and orders for prior periods has been restated. This
segment accounted for most of the weakness in the last quarter.
Management stated that the smartphone segment remained strong and
it was in the other areas that market saturation brought on some
weakness. Antennas were a weak point in the last quarter.
Segment revenues shrank 17.8% sequentially while growing 16.2%
from last year.
accounted for 14% of revenue, up 10.3% sequentially and 1.3% from
last year. The strength in the last quarter was quite broad-based
across instrumentation, factory automation and transportation
segments. Molex also saw improved order trends at distributors,
which is a big positive considering that they account for 65% of
the company's industrial revenue. The business typically reflects
global GDP growth rates.
grew 9.3% sequentially and dropped 17.1% year over year to 14% of
revenue. Continued weakness in TVs, gaming and digital cameras
(that are being impacted by increased demand for camera phones)
were responsible for the softness.
Molex should do well longer-term, as its customers introduce
new products targeting the BRIC countries, as well as Vietnam and
Thailand, where growth is expected to be stronger than in other
parts of the world. Higher disposable income and increased
consumerism in developing countries are secular drivers of demand
in this market.
, at 13% of revenue, grew 8.8% sequentially and declined 7.8%
from last year. Switching and networking equipment product lines
drove results in the last quarter. Overall service provider
spending remains cautious however. Molex's optical routing and
digital cross connect products position it well for 4G LTE
build-outs in China. Spending on this infrastructure has so far
been mainly in North America, Japan and Korea.
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.
The remaining 5% of Molex's revenue came from
markets, which were up 3.2% sequentially and 36.0% year over
year. The increase from the year-ago quarter is attributable to
the Affinity Medical acquisition. Molex is gradually building its
position in this market.
Total orders were down 3.2% sequentially and 2.3% from the Mar
quarter. As a result, backlog also dropped 3.4% sequentially,
while increasing 4.5% from last year. The book to bill was around
Approximately 20% of Molex's total orders came from the
automotive segment, 18% from the data/ infotech market, 15% from
the mobile devices segment, and 14% each from the telecom,
consumer and industrial markets. The remaining 5% came from the
medical/military market. Mobile devices orders were down 31.8%
sequentially, automotive was flat, while all other end markets
Molex reported a gross margin of 29.1%, down 3 basis points
(bps) sequentially and 90 bps year over year. Molex attributed
the decline from the year-ago quarter to mix changes. Its costs
are going up, particularly with respect to certain new
applications and assemblies for the mobile segment.
Operating expenses of $174.0 million were up 4.0% from the
previous quarter's $167.4 million, with the operating margin
shrinking 12 bps sequentially and 179 bps year over year to
Molex's net income was $57.1 million or 6.5% of revenue
compared to $58.3 million or 6.8% of revenue in the Mar 2013
quarter and $75.1 million or 8.7% of revenue in the Jun quarter
There were no one-time items in the last quarter. Therefore,
the GAAP net income was the same as the pro forma net income of
32 cents a share, which was up from 25 cents in the previous
quarter and 40 cents in the year-ago quarter.
Inventories were down 2.4%, with inventory turns increasing
from 4.4X to 4.7X. DSOs went up from 70 to around 73 days.
Molex ended with a cash and short term investments balance of
$721.9 million, up $9.0 million during the quarter. Cash
generated from operations was $148.1 million, down from $87.2
million in the first quarter. Capital expenses were $59.0
million, or 6.7% of revenue, similar to 6.6% of revenue in the
Molex expects revenue of $890-930 million in the next quarter,
up 1-5% sequentially. The forma EPS is expected to be 35 to 39
cents a share, assuming a tax rate of 30-32%. The Zacks Consensus
estimate for the fourth quarter of fiscal 2013 was 40 cents,
above the guided range.
Molex is a leading player in the fast-growing connector
market, with several secular growth drivers. However, the company
appears to be seeing more growth in lower-margin segments, which
is impacting its profitability. Additionally, macro conditions in
Europe are impacting results, and the negative effect may be
expected to continue in the next few quarters.
A few other factors need to be considered for the long term.
For instance, the nature of the business necessarily leads to
some commoditization, which in turn results in price erosion. New
product launches by customers and the evolving nature of the
served markets are offsetting positives that Molex should be able
to take advantage of given its market position.
In the near term, we expect the shares to remain under
pressure due to weakness in key end markets. Molex shares carry a
Zacks Rank #4 (Sell).
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