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Molex Inc. (MOLX)

F1Q2011 Earnings Call Transcript

October 26, 2010 5:00 pm ET

Executives

Steve Martens – VP, IR

Martin Slark – Vice Chairman and CEO

David Johnson – EVP, Treasurer and CFO

Analysts

Craig Hettenbach – Goldman Sachs

Steve O'Brien – JPMorgan

Matt Sheerin – Stifel Nicolaus

Amitabh Passi – UBS

Brian White – Ticonderoga

Shawn Harrison – Longbow Research

Steven Fox – CLSA

Wamsi Mohan – Bank of America

William Stein – Credit Suisse

Jim Suva – Citi

Amit Daryanani – RBC Capital Markets

Anil Doradla – William Blair & Company

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the first quarter 2011 Molex, Inc. earnings conference call. My name is Deanna and I will be your operator for today. At this time, all participants are in a listen-only mode. As a reminder, this conference is being recorded for replay purposes.

I’d now like to turn the conference over to your host for today, Mr. Steve Martens, Vice President of Investor Relations. Please proceed.

Steve Martens

Thank you, Deanna. Good afternoon, everyone and thank you for joining us today. I am here today with Martin Slark, our CEO and Dave Johnson, our CFO.

Please note this call is being recorded, and will be available for replay by accessing the Investor Relations section of our Web site. Presentation materials are also available on the Web site. As usual, we’d like to limit this call to one hour. When we get to Q&A, we ask for one question per participant, and one follow-up question.

During the course of this presentation, we will be providing forward-looking information and referring to certain non-GAAP measures. Please read carefully the forward-looking statements section of our press release and Form 10-K for an understanding of the risks and uncertainties associated with forward-looking information and the reconciliation of non-GAAP measures to GAAP.

Now, I’ll turn the call over to Martin.

Martin Slark

Thank you, Steve, and good afternoon everybody. If you like to turn to page three, we have added a new slide to this quarter’s deck, where we have put in a one page summary of what we think are the key points emerging from the quarter we just finished.

The first point I obviously want to talk about is a quick update on unauthorized activities in Japan. As you already know, the unauthorized activity occurred many years ago when we restated our financial results in June 10-K to reflect the liability of this unauthorized activity.

During the quarter that we just completed, we were served notice of a lawsuit by the financial institution involved. We responded to this complaint and we intend to vigorously defend our position as these loans were unauthorized. This matter is now subject to ongoing litigation. We can’t provide additional details at this time or answer any more questions about this particular topic.

Now, we would like to spend the rest of the call talking about our operating results, and we are very pleased to announce the fact that we had record revenues and earnings per share in the September quarter.

Given where we were 18 months ago, this is quite an accomplishment and obviously reflects good progress by the company and tremendous recovery in the electronics industry generally.

Our orders declined from the record levels obtained in the June quarter; however, we still had one of our best quarters ever for orders and the level of business activity certainly remains quite strong.

During the quarter, we made progress reducing our unusual logistics costs as well as improving production efficiencies on transferred production. Corrective actions of these items are largely a function of time, time to build inventory to fill ceilings and time for our manufacturing operations to learn the nuances of working with new equipment.

We continue to improving in these areas, and we expect to see further progress in the December quarter. We also made progress reducing our backlog, which hit an all-time high in the June quarter due to the rapid recovery experienced over the last several quarters.

Backlog was reduced by $28 million from the June levels as we brought online additional capacity.

Finally, we announced a 15% increase in our dividend. We have a long-term commitment to our dividend and given the increase in earnings potential of our new organization and the projected future cash flows, we are very comfortable increasing the payout at this time.

You turn now to page four. I’ll talk a little bit about our revenue and order trend. Revenues for the September quarter were an all-time high of $898 million, 3% above the previous high reached in June of ‘08 and 6% above the June quarter and 33% above the same quarter last year.

Even though orders declined 5% sequentially from the record set in the June quarter at $868 million, we achieved our third best quarter ever for new orders and year-over-year orders were still up 20% and all of that growth was organic.

The order rate was slower during the early summer and strengthened during the September and that strength has continued into October. While previous quarters were helped by incentives and inventory restocking, we believe that our current order rate is now more reflective of end demand.

It’s also worth noting that our bookings in the June quarter were up 9% sequentially and 58% year-over-year, so on a sequential basis we’re comparing ourselves to a record quarter.

Given that the major economies in Europe and North America are recovering slowly, it’s apparent that the emerging markets, particularly China are driving most of the growth in the electronics sector.

Disposable income in China increased by over 80% during the last five years and this trend is expected to continue as the recovery becomes more consumption-oriented and less dependent on exports.

This shift coupled with the proliferation of mobile devices and related infrastructure, an uptick in enterprise spending on tech hardware, and many new product introductions, we believe we will provide good opportunities to continue to grow our business as we move forward.

You turn now to page five I’ll talk a little bit about the order trend by channel and by geography. By channel, orders from distribution decreased by the largest amount, by about 12% from the June quarter.

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