MTS Systems' CEO Discusses Q1 2011 Results - Earnings Call Transcript

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MTS Systems (MTSC)

Q1 2011 Earnings Call

February 04, 2011 10:00 am ET

Executives

Laura Hamilton - Chairman and Chief Executive Officer

Susan Knight - Chief Financial Officer and Vice President

Analysts

Elizabeth Murphy Lilly

Michael Hamilton - RBC Wealth Management, Inc.

John Franzreb - Sidoti & Company, LLC

Liam Burke - Janney Montgomery Scott LLC

Presentation

Operator

Good day, ladies and gentlemen, and welcome to today's MTS First Quarter 2011 Earnings Release Conference Call. [Operator Instructions] And at this time, I would like to turn the conference over to Ms. Sue Knight. Please go ahead, ma'am.

Susan Knight

Thank you, Nicole. Good morning, and welcome to MTS Systems fiscal 2011 first quarter investor teleconference.

Joining me on the call today is Laura Hamilton, Chair and Chief Executive Officer.

I'd like to remind you that statements made today, which are not historical facts should be considered forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995.

Future results may differ materially from these statements depending upon risks, some of which are beyond management's control. A list of such risks can be found in the company's latest SEC forms 10-Q and 10-K. The company disclaims any obligation to revise forward-looking statements made today based on future events.

This presentation may also include reference to financial measures which are not calculated in accordance with Generally Accepted Accounting Principles or GAAP. These measures may be used by management to compare the operating performance of the company over time, but they should not be considered an isolation or as a substitute for GAAP measures.

Laura will now begin her update on our first quarter results.

Laura Hamilton

Thanks, Sue. Today, we're going to follow our standard outline. I'm going to start out with Q1 key messages. I'll take you through the order summary. Sue will take you through the financial details, and then I'll talk about the outlook for the year.

We have four key messages for the quarter. And the first is pretty obvious, we had a great quarter. Strong orders, revenue and earnings growth and while Sensors has been performing at this level for multiple quarters, the big change this quarter is in Test profitability.

Our second key message is that broadly, over the last few quarters, we are seeing improving global business fundamentals and economic confidence. And this is translating into investment in capital equipment.

Third key message is we did increase our dividend to $0.20 per quarter and per share, and this is a sign of our growing confidence.

And finally, we have moved our outlook range up, and we will talk about this more at the end of the call.

So let me shift to orders and backlog and give you a little bit of color on the quarter. I need to start by stressing that we're shifting back to year-over-year comparisons. We used sequential comparison during the first year of the recovery, but we think it's time to revert back to more traditional year-over-year comparisons. I'll talk about a little bit total company and then Sensors and Test.

For total company at $140 million, we were up 30% year-over-year for the quarter, and that was net of two points of negative currency effect. At $140 million, this is the second highest quarter in company history, 90% of this was due to base order increases, a little bit of it was about large order increase. Our backlog ended at $247 million, also a company record high.

Let's talk about the businesses for a minute. Sensors at $23.8 million in orders for the quarter. It was Sensors' largest quarter since Q3 of fiscal '08. On a year-over-year basis, we're up 38% of which that's net of three points of negative currency effect.

The largest gains that we saw this quarter were in Europe and in Asia, and Asia is predominantly China driven but we also saw moderate gains in the U.S. Generally speaking, last year, we talked about the market recovery in Sensors being primarily about plastic and rubber, steel and mobile hydraulics. And today, we're seeing evidence of a broader based recovery.

Our Industrial business is up 29% year-over-year, and we're seeing all major industrial markets up except steel, and they're up worldwide. This would include plastic and rubber, metal forming machines, fluid power and energy, particularly wind.

Mobile hydraulics is up 95% year-over-year, predominantly driven by Europe. But again, the U.S. is also up. The strongest gains in this segment were really driven by material handling and road building machine. Sensors' backlog at $16 million is essentially flat, and what we're seeing in the ordering patterns is that some large customers are placing blanket orders again. Again, another sign of customers building confidence in their forecast.

We continue to be working down the slightly higher backlog in the Sensor business. This will bring it down as a result both of resolving material supply issues, as well as we continue to adjust capacity to meet industry lead times.

In summary, Sensors' growth was broad, both geographically and across markets, and we continue to pursue new applications. And together, it's a quarter of exciting results and a strong start to the year.

So let's shift to the Test business order. At $116 million, we had an excellent quarter. At $116 million, we're up 29% year-over-year, net of minus 2% negative currency effect. This is the largest quarter for cash in the last seven years. Q1 came in at the high end of what we expected for the range, and it was really predominantly base orders plus large orders.

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