Bel Fuse Inc. (BELFB)

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Bel Fuse Inc. (BELFB)

Q1 2008 Earnings Call

April 25, 2008 11:00 am ET


Daniel Bernstein - Chief Exec. Officer, Pres,

Colin Dunn - Chief Financial Officer, Chief Accounting Officer

Dennis Ackerman - VP of Operations

Joseph Meccariello - VP of Manufacturing

Andrew Wong - VP of Circuit Protection


Todd Cooper - Stephens Inc.

Sean Hannan - Needham & Company

Zahid Siddique - Gabelli & Company

Bill Felicia – Felicia & Associates

Lawrence Goldstein - Santa Monica Partners



Ladies and gentlemen thank you for standing by and welcome to the Bel Fuse First Quarter Results Conference Call.

(Operator Instructions)

As a reminder, this conference is being recorded today April 25, 2008. It is now my pleasure to turn the conference over to Mr. Dan Bernstein, President. Please go ahead, sir.

Dan Bernstein

Thank you Shannon and I would like to welcome everybody to our conference call review of Bel’s First Quarter 2008 Financials. Before we start I would like to hand it over to Collin Dunn, our Vice President in Finance, Collin.

Collin Dunn

Good morning everybody. Thanks Dan. I am going to start with the Safe Harbor Statement.

Except for historical information contained in today's news release and on this conference call, the matters discussed including statements regarding improvements in performance and acquisition possibilities are forward-looking statements that involve risks and uncertainties. Among the factors that could cause actual results to differ materially from such statements are the market concerns facing our customers, the continuing viability of the sectors that rely on our products, the effect of business and economic conditions, capacity and supply constraints or difficulties, product development, commercializing or technological difficulties, the regulatory and trade environment, risk associated with foreign counties, uncertainties associated with legal proceedings, the market's acceptance of the company's new products and competitive responses to those new products, and the risk factors detailed from time to time in the Company's SEC reports.

In light of the risks and uncertainties, there can be no assurance that any forward-looking statement will in fact prove to be correct. We undertake no obligation to update or revise any forward-looking statements.

Now we are moving on to discuss our first quarter 2008 results, starting with sales. For the first quarter of 2008 our sales were $60,869,000.00, which was 1.5% lower than the $61,807,000.00 in the first quarter of 2007. The $60,869,000.00 was also lower than the $69,339,000.00 of the preceding quarter in the end of December 2007.

Sales for the first quarter rest significantly on the Modules product group that includes DC to DC converters and custom modules. With other product groups down throughout the quarter, this quarter above here is including the Chinese Lunar New Year holiday period.

Products and cost of sales going out of the quarter on a GAAP basis with net after-tax base earnings of $2,167,000.00, this is below the net earnings of $4,009,000.00 for the first quarter of 2007 and above the $10,255,000.00 in the previous that is the fourth quarter of 2007. Our gross margin for this first quarter was approximately 18.5%, which of course is below the $22.5 million gross margin for the same period in 2007. And the first quarter margin was below the 22.2% gross profit margin for the fourth quarter of 2007.

The world margin when compared to first quarter 2007 was primarily due to higher sales with Module products returned a little gross profit percentage margins as a larger percentage of the bills of materials of precious components, labor cost increases and lower labor productivity and material cost increases.

There has been a shortage of labor in the areas with our products in manufacturing in People’s Republic of China. As we said in our press release, 3,500 workers have been hired and we expect another additional 1,500 will be added. Many workers have returned to their homes for the vacation of the Chinese New Year and we cannot predict how many will return.

The addition of new workers with well productivity levels as they become familiar with our methods of production (inaudible) our output. Also PRC officials announced an increase in wage rates should be effective April 1, 2008 in the areas where our products are manufactured. To encourage workers to both return or commence working in these factories, we needed to in effect an early implementation of those high wage rates in the first quarter of 2008.

Additionally, the US dollar continued to flow in value against the PRC1 in which all our PRC factory wages are paid. We continue to experience higher material cost that have not been able to pass through to our customers. Although going forward, our selling price increases, we settled with selling price increases immanent throughout the industry.

Turning to selling general and administration expenses, the percentage relationship of selling general and administration expenses to net sales decreased from 15.3% during the third three-month period ended March 31, 2007 to 14.7% during the three months just ended. The decrease in selling general and administration expense for the three months ended March 31, 2008 compared to the three months ended March 31, 2007 was approximately $600,000.00.

The decrease is principally attributed to the following: Legal and professional fees decreased by half a million dollars for the first quarter of 2007. This we do to the implementation of an internal order and its auxiliary function which reduced or an external consultancy significantly. Our the general and administrative cost decreased by $300,000.00 during the first quarter of 2008 as compared to the first quarter of 2007, as the company did not accrue any bonuses during the first quarter of 2008 due to grow-up profitability during this quarter. There was also no bonus accrual, I might add in the first quarter of 2007.

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