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Molex (MOLX)

Q3 2011 Earnings Call

May 03, 2011 5:00 pm ET


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


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

Wamsi Mohan - BofA Merrill Lynch

Shawn Harrison

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

Brian White - Ticonderoga Securities LLC

Jim Suva - Citigroup Inc

Amitabh Passi - UBS Investment Bank

Sherri Scribner - Deutsche Bank AG

Ryan Jones - RBC Capital Markets, LLC

Steven O'Brien - JP Morgan Chase & Co

William Stein - Crédit Suisse AG

Steven Fox - CLSA Asia-Pacific Markets

Craig Hettenbach - Goldman Sachs Group Inc.



Good day, ladies and gentlemen, and welcome to the Quarter 3 2011 Molex, Inc. Earnings Conference Call. My name is Kelly, and I'll 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

VP of Investor Relations

Welcome to our March 2011 conference call. I'm here today with Martin Slark, our CEO; Dave Johnson, our CFO; and Liam McCarthy, our COO. Martin will give an overview of the quarter and provide commentary on revenue and orders as well as development in our key markets. Dave Johnson will be reviewing financial perform for the quarter and discuss guidance for the June quarter. [Operator Instructions] Please visit the Investor Relations section of our website, download the presentation materials and to access a replay of this call.

Before we turn our attention to the quarterly results plus review Slides one and two, which are our Safe Harbor statements. 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 for joining the call. If you'd like to turn to slide three, I'll start off by giving you a quick high-level summary of the third quarter.

First of all, let me comment on the situation in Japan. We were obviously, as everybody else was, very saddened by the news of the events in Japan and the effect that it's having on the country of Japan. Fortunately, all of Molex's employees were safe and our facilities were barely impacted on a direct basis. However, our supply chain in Japan does rely on the use of subcontractors for additional capacity and to produce primarily high-mix, low-volume and near-end-of-life products. Unfortunately, three of our subcontractors well located in the impact zone and were directly affected. Our located with these suppliers are either missing or not operational, and we have taken steps to put neutrals in place and to ensure that we can satisfy our customers' requirements.

After the earthquake hit, using our SAP system, we able to quickly identify which parts and customers were impacted by the earthquake, assess global inventory on a direct basis and through our distributors, look at the backlog and inform customers who were impacted. We expect that all the 18 neutrals will be operational by the end of this quarter. Most will be built by our own tooling centers around the world. I'd like to compliment on this call our global management team of Molex that worked on the situation. It was a 24x7 with people working on both sides of the Pacific. And to the best of our knowledge, we have caused very little direct impact our major customers to date, and this was a tremendous team effort to accomplish that end objective.

On a local basis in Japan, we did see a reduction in the average daily rate of orders after March 11. But the average daily rate of incoming orders for the total company remains strong and did not decline after March 11. It appears that the global economy is continuing to strengthen and our balance distribution across many markets, geographies and customers has largely insulated us from the immediate impacts of the disasters in Japan.

The impact of the power shortages and the potential reduced demand in Japan are much harder to assess as is the indirect impact from other suppliers not being out of supply components to our customers. Liam McCarthy and I both traveled to Japan shortly after the disaster, and our Molex management team in Japan has been in close communication with our customers as they continue to assess the potential longer-term impact to their supply chains and in demand.

In addition to the issues in Japan, our March quarter was influenced by Chinese New Year, which resulted in a back-end loaded quarter. In general, the quarter developed as expected with strong January revenues followed by a pause in February and then a very strong March. The strength has continued to April with orders in April over $300 million in the month and with a daily run rate that was actually was above March, which we believe will give us good momentum for the June quarter.

Dave Johnson will cover further details of the final-- financial impact of the disasters in Japan in his section as well as more information on our balance sheet. However, I'd like to comment quickly in his introductory section about how strong our free cash flow was for the quarter at $80 million. Given the significant growth opportunities at our end markets and the slow-but-sure improvement in the global economy and our strong cash flow, our board has authorized another increase in our dividend to $0.20 per share per quarter. This increase is effective in the June quarter but payments to be made in July.

Now please turn to Slide four where we'll talk about the quarterly trend of revenues and orders. Revenues for the March quarter were $875 million, a sequential decline of 3% from the December quarter, which is in line with our 10-year average. So in this respect, we appear to be returning to more normal seasonal cycles. Last year's economic recovery somewhat overshadowed the normal seasonal slowdowns that we see during the quarter which includes Chinese New Year.

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