Methode Electronics, Inc. (MEI)

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Methode Electronics (MEI)

Q1 2012 Earnings Call

September 01, 2011 11:00 am ET

Executives

Douglas Koman - Chief Financial Officer, Principal Accounting Officer and Vice President of Corporate Finance

Donald Duda - Chief Executive Officer, President and Director

Analysts

Jeremy Hellman - Singular Research

David Leiker - Robert W. Baird & Co. Incorporated

Presentation

Operator

Welcome to the Methode Electronics Fiscal 2012 First Quarter Earnings Presentation. [Operator Instructions] As a reminder, this conference is being recorded. This conference call does contain certain forward-looking statements, which reflect management's expectations regarding future events and operating performances and speak only as of the date hereof. These forward-looking statements are subject to the Safe Harbor protection provided under the Securities Laws. Methode undertakes no duty to update any forward-looking statements to conform the statement to actual results or changes in Methode's expectations on a quarterly basis or otherwise. The forward-looking statements in this conference call involve a number of risks and uncertainties. The factors that could cause actual results to differ materially from our expectations are detailed in Methode's filings with the Securities and Exchange Commission, such as our annual and quarterly report. Such factors may include, without limitations, the following: dependence on a small number of large customers, including 2 large Automotive customers; dependence on the Automotive, appliance, computer and communications industries; further downturns in the Automotive industry or the bankruptcy of certain Automotive customers; Automotive program launches may be delayed or have lower than anticipated volumes; ability to compete effectively, customary risks related to conducting in global operations; dependence on the availability and price of raw materials; dependence on our supply chain; ability to keep pace with rapid technological changes; ability to avoid design or manufacturing defects; ability to protect our intellectual property; ability to withstand price pressure; the usage of a significant amount of our cash and resources to launch new North American Automotive programs; location of a significant amount of cash outside of the U.S.; currency fluctuation; ability to successfully benefit from acquisitions and divestitures; ability to withstand business interruptions; unfavorable tax laws; ability to implement and profit from newly acquired technology; and the future trading price of our stock.

It is now my pleasure to introduce your host, Don Duda, President and CEO of Methode Electronics. Thank you. Mr. Duda, you may begin.

Donald Duda

Thank you, Christine, and good morning, everyone. Thank you for joining us today for our fiscal 2012 first quarter financial results conference call. I am joined today by Doug Koman, Chief Financial Officer; and Ron Tsoumas, Controller. Both Doug and I have comments and afterwards, we will be pleased to take your questions.

Our 2 business segments have showed year-over-year higher sales in fourth quarter of 2011, namely Automotive and Power Products, continue to experience revenue improvement in the first quarter of fiscal 2012. These results reflect the impact of our new product introductions and higher market penetration. On a consolidated basis, net sales grew nearly 12% to $111 million, driven by organic growth in our North American and Asian Automotive businesses, improved safety rating remote control sales in both Europe and Asia and increased power product demand in North America as well as Asia. We continue to rebuild Methode's revenue from a 6-year low of $378 million in fiscal 2010 despite the reduction of legacy Automotive products and the unplanned loss of the Delphi business.

On the earnings front, we posted net income of $1.5 million or $0.04 per share compared to $4.1 million or $0.11 per share in the first quarter of fiscal 2011. As we detailed in the press release this morning, there were a number of items which negatively affected our net income, Doug will address each of these in more details in a few minutes. However, I'd like to discuss the 2 major items that have impacted our results. First, costs related to the vendor production delivery issues, as well as cost related to the design, development and launch of 2 large Automotive programs; and secondly, the new product development expenses in our Power Products segment. In total, these costs lowered our first quarter net income by approximately $2.4 million or $0.06 per share. Let me address these items.

As we announced in our release this morning, we intend to acquire an injection molding and painting operation. This acquisition will be a key step in mitigating the vendor production and delivery issues. As we discussed last quarter, the vertical integration of this critical process is expected to reduce costs, improve quality and mitigate certain supply risks experienced during the past few quarters. We intend to close the acquisition in September and complete the integration of the operation by the end of fiscal 2012.

That being said, we anticipate the vendor production and delivery issues will impact net income by approximately $2 million for the remainder of fiscal 2012. The $1.2 million costs related to the design, development and launch of 2 large Automotive programs are for the additional T-76 business in North America, which will launch in the second half of this fiscal year and represents about half of the cost and for the General Motors center console program, which will launch in the fourth quarter of fiscal 2013 and represent the other half of the expense in the quarter. We anticipate the design, development and launch costs for these Automotive programs will be approximately $1.8 million for the balance of fiscal 2012.

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