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Methode Electronics (MEI)
Q3 2013 Earnings Call
February 28, 2013 11:00 am ET
Donald W. Duda - Chief Executive Officer, President and Director
Douglas A. Koman - Chief Financial Officer, Principal Accounting Officer and Vice President of Corporate Finance
Steven L. Dyer - Craig-Hallum Capital Group LLC, Research Division
Joseph D. Vruwink - Robert W. Baird & Co. Incorporated, Research Division
Jimmy Baker - B. Riley & Co., LLC, Research Division
Previous Statements by MEI
» Methode Electronics' CEO Discusses F2Q 2013 Results - Earnings Call Transcript
» Methode Electronics Management Discusses Q1 2013 Results - Earnings Call Transcript
» Methode Electronics Management Discusses Q4 2012 Results - Earnings Call Transcript
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 expectation 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, which is our annual and quarterly report. Such factors may include, without limitations, the following: dependence on 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; the ability to successfully launch a significant number of programs; 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 margin due to a variety of factors; ability to avoid, design or manufacture defects; ability to protect our intellectual probably; 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.
Thank you, Mr. Duda. You may begin.
Donald W. Duda
Thank you, and good morning, everyone. Thank you for joining us today for our fiscal 2013 third 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 third quarter and 9-month sales grew nearly 10% to $123 million in the quarter and $371 million in the year-to-date period. In both periods, improved volumes were driven mainly by increased sales of the Ford center console program, lead frame assembly products, new product launches in our European Automotive business, torque-sensing products sales for e-bikes, motorcycles and ATVs, as well as higher appliance sales. These sales improvements were partially offset by softness in our European industrial operations and Power Products segments.
As we announced this morning, we received the second half of the $20-million litigation settlement in January. We recorded the entire gain in the second quarter in the income from settlement section of the income statement.
Methode's third quarter net income was $3.3 million or $0.09 per share compared to $0.8 million or $0.02 per share in the same period last year. Excluding the impact of the litigation settlement, Methode's 9-month net income was $11.4 million or $0.03 per share compared to $2.6 million or $0.07 per share last year. The third quarter earnings improvement was primarily driven by higher sales along with lower third-party inspection, premium freight and overtime expenses in the Automotive segment, higher-than-anticipated income from our torque-sensing business, MFT, lower stock or amortization, selling and administrative expenses and legal expense.
Third quarter earnings were negatively impacted by higher costs related to the design, development, engineering and launch of the General Motors center console program, cost related to the delayed launch of the laundry program and manufacturing inefficiencies due to lower sales and unfavorable product mix within the Power Products segment. Costs related to the design, development and launch of the General Motors center console program lowered third quarter net income by approximately $1.8 million or $0.05 per share and lowered year-to-date net income by $5.2 million or $0.14 per share. Last quarter, we anticipated total launch costs for the program would be approximately $4.5 million in fiscal 2013. However, costs came in higher than anticipated in the third quarter due to higher-than-expected testing costs and product design changes requested by the customer. The majority of these costs will be recovered through price increases negotiated this year, which will be recouped over the 5-year course of the program.
As we announced in the press release this morning, the General Motors center console program was originally scheduled to launch this April. Due to delay by the OEM, the truck portion of the program is now expected to launch 1 month later in May. And the SUV portion of the program is expected to launch in late January of next year. However, the production releases we are currently seeing thus far for our first quarter, is of course the volume ramp we have been projecting for fiscal 2014. Because of the delay in the launch of the General Motors program, along with the costs I just mentioned, we anticipate incurring approximately $1.8 million in launch costs in the fourth quarter, bringing total launch cost to approximately $7 million for fiscal 2013.