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Molex (MOLX)

Q4 2011 Earnings Call

August 03, 2011 8:30 am 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.

Rahul Chadha - Crédit Suisse AG

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

Shawn Harrison

Brian White - Ticonderoga Securities LLC

Jim Suva - Citigroup Inc

Amit Daryanani - RBC Capital Markets, LLC

Anthony Kure - KeyBanc Capital Markets Inc.

Amitabh Passi - UBS Investment Bank

Sherri Scribner - Deutsche Bank AG

Steven O'Brien - JP Morgan Chase & Co

Ruplu Bhattacharya - Bank of America

Craig Hettenbach - Goldman Sachs Group Inc.



Good day, ladies and gentlemen, and welcome to the Fourth Quarter 2011 Molex Incorporated Earnings Conference Call. My name is Chanel, and I'll be your operator for today. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. I would now like to turn the conference over to your host for today to Mr. Steve Martens, Vice President of Investor Relations. Please proceed.

Steve Martens

Thank you, Chanel. Good morning, and welcome to our June 2011 conference call. I'm here today with Martin Slark, our CEO; Dave Johnson, our CFO; and Liam McCarthy, our COO. [Operator Instructions] Please visit the Investor Relations section of our website to download the presentation materials and to access a replay of this call later today.

Before we begin, let's review our Safe Harbor statements, which are Slides 1 and 2 of the presentation materials. 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 hello to everybody on the call. I'm going to split my presentation today into 3 sections. I'm going to talk first of all, briefly about fiscal year 2011. I'll then focus more attention on the June quarter just ended. And then after Dave reviews the financials in detail, I'll talk about our fiscal year 2012 priorities before we open the call to Q&A.

Fiscal year '11 was a good year for Molex. And if you look at Page 3 of our presentation materials, we've summarized what we thought were the key points. We established new records for orders, revenue and earnings per share, and we are pleased with the way that the Molex team performed in what has been difficult and dynamic environment.

While we completed our reorganization roughly a year ago, we continue to see new benefits beyond the restructuring savings. CapEx has been in the range of 6% to 7% for 4 years now, even while expanding our manufacturing base. We are better aligned with our customers, and we have realized marked improvements in our key metrics, such as delivery and quality.

2011 was also a good year for Molex in the area of expense control. We were able to get our SG&A below our target of 18% of revenue, even while investing in R&D and selling expenses during the year to support future growth. Our challenge is to continue to leverage our reduced admin costs wherever possible and improve the efficiency of our selling and R&D efforts.

During the year, we worked to further diversify our customer base, continuing to penetrate our larger global accounts with our extensive product portfolio and driving growth with our Focus Accounts. For the year, our Focus Accounts grew by 46%. We are very well diversified in every way today, by customer, by geography and by end market. We believe that this reduces our risks and affords us many avenues for growth in reasonable economic conditions.

For the year, revenue grew 19% from fiscal year '10. EPS, including non-GAAP charges in fiscal year '10 grew 55%. Our operating margin also expanded from 9.4% to 12%. As a result, we generated cash flow from operations of $466 million for the year. This was more than sufficient to fund CapEx and growth initiatives for the business and increase our dividend twice during the year.

Please turn now to Slide #4. What I'll talk about here is our growth by industry for the fiscal year. The broad-based recovery continued for our fiscal year, with all markets realizing double-digit growth on a year-on-year basis for revenue. Tablets were a major contributor to the increase in the infotech market. But we also saw a good sales growth into service and storage equipment, as companies upgraded their data centers.

Industrial market grew 23% for fiscal year '10 as the recovery in global GDP drove the need for factory automation equipment and spending on industrial equipment. We were very pleased with the contribution from our Woodhead acquisition fiscal year '11. After a few years of struggling with this acquisition, it is now making a very positive contribution to both our sales and profitability growth.

The drivers for the growth in telecom last fiscal include the ongoing penetration of smartphones, which have better connector content than mid-range phones and increased spending on network equipment, primarily due to the rise in video Internet traffic. This was an exceptional year for Molex in terms of overall growth when we've clearly rode the overall economic recovery. And we obviously do not expect to continue growth at this pace in the years ahead. Revenue now exceed the precrisis levels, and we seem to be returning to more normal demand environment. Moving forward, we'll continue to work to change our end market mix, trying to increase our exposure to areas of business that have higher margins.

Please turn now to Slide 5. On Slide 5, we have our quarterly progression of revenue of -- and orders. We achieved record revenue of $914 million and near-record bookings of $906 million during the June quarter. Revenue was up 5% from the March quarter and up 8% from June 2010 quarter, while orders were up 3% sequentially and down slightly from the same quarter in 2010. It's worth noting here that with the benefit of hindsight, Q4 fiscal year '10 was an abnormal quarter for bookings. In Q4 last year, we saw abnormally high bookings from our distributors and for the infotech market. And if you look at the chart above, the spike in Q4 clearly is out of sync with the overall progression throughout the remaining quarters.

The book-to-bill ratio last quarter was 0.99:1. This primarily reflects strong shipments, up particularly at the end of the quarter, but a slight slowdown in orders at June. We believe that the impact from the natural disasters in Japan was largely in line with the assumptions that we used to prepare our guidance for the June quarter. Going forward, we would expect to see a slight recovery in the September quarter in Japan with a more substantial recovery in the December quarter.

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