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Molex (MOLX)

Q2 2011 Earnings Call

January 25, 2011 5:00 pm ET

Executives

Martin Slark - Vice Chairman, Chief Executive Officer and Member of Executive Committee

David Johnson - Chief Financial Officer, Executive Vice President and Treasurer

Steve Martens - VP of Investor Relations

Analysts

Louis Miscioscia - Collins Stewart LLC

Wamsi Mohan - BofA Merrill Lynch

Matthew Sheerin - Stifel, Nicolaus & Co., Inc.

Rahul Chadha - Crédit Suisse AG

Anil Doradla - William Blair & Company L.L.C.

Brian White - Ticonderoga Securities LLC

Shawn Harrison

Jim Suva - Citigroup Inc

Amit Daryanani - RBC Capital Markets, LLC

Amitabh Passi - UBS Investment Bank

Steven Fox - Merrill Lynch

Steven O'Brien - JP Morgan Chase & Co

Craig Hettenbach - Goldman Sachs Group Inc.

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the Second Quarter 2011 Molex Inc. Earnings Conference Call. May name is Caitlin, and I will be your operator for today. [Operator Instructions] I would now like to turn the presentation over to your host for today, Mr. Steve Martens, Vice President of Investor Relations. Please proceed.

Steve Martens

Thank you, Caitlin. Good afternoon, everybody and thank you for joining us today. I'm here today with Martin Slark, our CEO; Dave Johnson, our CFO; and Liam McCarthy, our COO. This call is being recorded, and will be available for replay through the Investor Relations section of our website. Presentation materials are also available on the website. We would like to limit the call to one hour. When we get to the Q&A, we ask for one question and one follow-up per participant. Slides 1 and 2 concern forward-looking statements and non-GAAP financial measures.

During the course of this presentation, we will be providing forward-looking information and referring to 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. And now I’ll turn the call over to Martin.

Martin Slark

Thank you, Steve, and good afternoon, everybody. Before we go into the main part of the call, I'd like to start with a brief overview of the highlights for the December quarter. So if you turn to Page 3 or Slide 3 of the presentation material we've circulated, I'll cover the key points through on that slide.

On our last call, we discussed how business had stabilized at what we felt was a healthy level. But generally, economic recovery seems to be continuing and there are new developments in the electronics industry that offer Molex continuous opportunities for growth. Economies in the developed world continue to slowly but surely improve, while emerging countries continue to grow at a faster pace. The holiday season was relatively successful this year, and we see no evidence of excess inventory in the consumer electronics or mobile device channels at this time.

Consumer Electronics Show held earlier this month seemed to be a big success with many new mobile devices announced. These devices pack more and more power and functionality than ever before, and they require a lot of advanced interconnect technologies that we believe we can offer. As a result of good business conditions and through the hard work of all of our employees around the world, we gained set new quarterly records for revenue and EPS. Revenue increased 24% year-over-year while EPS increased 460% year-over-year.

Clearly, the changes implemented by Molex over the past few years are achieving the intended result of increased growth and improved profitability. In addition to improving macro conditions, we continue to see positive results from our Focus Account program. We recently expanded the number of Focus Accounts in this key program, and we now have 74 accounts that are covered. In the last quarter, Focus Accounts grew faster than the total company and they now account for 31.4% of our revenue and they were up 48% year-over-year.

During the last call, we discuss our price increase that we'd implemented as a result of our Vendavo pricing initiative. As of January 1, we've increased pricing across a significant portion of our business, and we believe this will have a positive impact on our gross margin as we move forward.

We were also pleased to complete the acquisition of Luxtera, which is an active optical cable business in January. This will be a good addition to our high-speed cable business, where we see solid growth prospects, particularly in the telecom infrastructure market. We continue to look for small acquisitions in new technology, areas or to vertically integrate our Integrated Products group. And we have a good pipeline of other opportunities that we are continuing to work on.

We turn now to Slide 4. Revenue for the quarter was $901 million, slightly above the September quarter and as we previously stated, 24% higher than 2009. This is the second straight quarter with record revenue and the first time we've exceeded $900 million. It's probably worth pointing out here, too, that when you look at the progress over the last calendar year, it was all organic growth. Orders were $872 million, again slightly above the September quarter and 12% above the same quarter in 2009. The bookings strength this quarter was encouraging because we generally experience a reduction in orders due to the seasonality of some of our end markets.

Our book-to-bill ratio was 0.97%, which is in line with normal seasonality for our business when you go back to years with more stable business conditions. Backlog was $440 million at the end of the quarter, a reduction of $31 million from the September period.

We turn now to Slide 5. On Slide 5, we show orders by channel and by geography. Orders from distribution were down sequentially as we saw evidence that our major distributors were managing their year-end inventory. Looking back over the last two years that we have some good data to support this, when comparing this channel to our overall business, it appears that our distributors overcorrected during both the down and the recovery cycles that have gone through the last couple of quarters of a somewhat of an inventory correction. Looking today at the inventory in our distributors' shelves, it's hard for us to get an exact picture, but it certainly looks that there's a number of days they had is of more normal levels.

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